What is capital gains tax? Everything you need to know

What is capital gains tax? It’s a complex subject, but understanding its implications is crucial for any taxpayer. Whether you’re selling stocks, real estate, certain business assets, or other investments, knowing how capital gains tax will help you stay on top of your obligations and minimise your tax liabilities.

In this blog post, we’ll delve into the essentials of capital gains tax, including rates, exemptions, calculation methods, and the overall impact on businesses.

What is capital gains tax?

Capital gains tax is a tax levied on the profit made from the sale of an asset. When you sell an asset for more than you paid for it, the difference between the purchase and selling price is considered a capital gain, which the Government can then tax.

You pay capital gains tax on the gain when you sell:

• most personal possessions worth £6,000 or more, except from your car
• property that is not your main home
• your main home if you’ve let it out, used it for business or it’s very large
• any shares not in an ISA or PEP
• business assets.

You do not pay capital gains tax when your total gains are below your annual tax-free allowance, which is £3,000 for individuals.

What do you pay?

If you’re a higher or additional rate taxpayer, you’ll pay 24% of your gains from residential property and 20% on gains from other chargeable assets. If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain and your taxable income.

1. To work out the rate you have to pay, you need to calculate your taxable income, which is your income minus your income tax personal allowance and any other tax relief you’re entitled to.
2. Next, deduct your tax-free allowance from your taxable gains, and add this total to your taxable income.
3. If this amount is within the basic income tax band, you’ll pay 10% on your gains (or 18% on residential property).
4. You’ll pay 20% on any amount above the basic tax rate (or 24% on residential property).

How to report and pay your capital gains tax

How you report and pay your capital gains tax depends on whether you sold:

• a residential property in the UK on or after 6th April 2020
• something else that’s increased in value.

Property

You must report and pay capital gains tax due on UK residential property within:

• 60 days of selling the property if the completion date was on or after 27 October 2021

You may have to pay interest and a penalty if you do not report and pay on time.

If you sold a residential property before 6 April 2020, you must report your gains in a self-assessment tax return for the tax year following the sale.

Other capital gains

You can report other gains, you can report your gain either in a self-assessment tax return or by using the ‘real-time’ capital gains tax service.

How an accountant can help

An accountant can play a crucial role in helping individuals and businesses navigate their capital gains tax obligations.

At Stapletons, we understand the complexities of capital gains tax and how it impacts your financial actions. With us by your side, we’ll report your gains without fault to ensure you remain completely compliant. We’ll also work with you on strategies to minimise the tax you owe so capital gains tax doesn’t hold you back from achieving your goals.

Contact us today so we can work together to optimise your tax outcomes.