Capital Gains Tax

Need CGT advice?

If you've sold an investment like property, shares or art at a profit, you may owe Capital Gains Tax (CGT) to HMRC. Here's a straightforward guide to understanding how CGT works and ensuring you remain compliant.

CGT

Navigating Capital Gains Tax

What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax you may need to pay when you sell certain assets like property, shares, antiques or other investments. It applies to any profits you make when you sell an asset for more than you originally paid for it.

CGT was first introduced in the UK in 1965. Prior to this, capital gains were not taxed. The tax has undergone several major reforms over the years, including changes to the rates and structure of the tax.

CGT is charged at 10% for basic rate taxpayers or 20% for higher rate taxpayers on most gains made by individuals. Companies pay CGT at their corporation tax rate on asset disposals.

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CGT Rates and Allowances in 2024/25 tax year

The CGT rates and allowances are used to work out the overall gains above the tax-free allowance (known as the annual exempt amount).

The rates depend on the total amount of taxable income, and the tax rates vary for individuals, trustees, and companies.

For Individuals:
- You can make up to £3,000 in gains before paying any CGT (this was £6,000 in 2023/24, so the exempt amount has been reduced).

For Trustees:
- The annual exempt amount for trustees is £1,500 (also reduced from £3,000 in the previous year).

Tax Rates:
- If you're a basic rate taxpayer, you'll pay 10% CGT on any gains above the exempt amount.
- Higher and additional rate taxpayers pay 20% CGT on gains exceeding the exempt amount.
- Trusts and estates also pay 20% CGT on gains above their exempt amount.

Residential Property and Carried Interest:
- There's an additional 8% surcharge on top of the standard CGT rates for any gains made on the sale of residential properties (not your main home) and carried interest.

However, the good news is that the higher CGT rate for residential property disposals will be cut from 28% to 24% (the lower rate remains at 18% for basic rate taxpayers).

Business Asset Disposal Relief (BADR):
- If you're selling all or part of a business, you may qualify for BADR, which means you'll only pay a 10% CGT rate on qualifying gains up to a lifetime limit of £10 million.

Reporting and Paying CGT

When you sell a UK property, you must report and pay any Capital Gains Tax within 60 days. You may also need to report the disposal of the property to HMRC on a separate return and pay.

To report and pay capital gains tax on uk property, you need to provide details of how much you bought and sold the asset for, the dates when you took ownership and disposed of the asset. Any other relevant details such as the costs of buying, selling or making improvements to the asset, and any tax reliefs you’re entitled to.

CGT Exemptions and Allowances

The CGT allowance is the amount of profit that can be made before CGT is payable. The allowance amount has increased steadily over time, from £1,000 for individuals in 1977 through to £12,300 in 2020/21.

However, in April 2023/24, the CGT allowance was reduced to £6,000, and in 2024/25, it further halved to £3,000.

What it means for taxpayers

Impact of CGT The reduction in CGT allowance from 2024/25 means that over 1,000,000 more individuals could be liable to Capital Gains Tax.

If you are a higher rate taxpayer, particularly a Buy-to-Let landlord, you can expect to see your expenses rise quite sharply if they haven’t already

Residential Property

The CGT rates for residential property in 2024/25 stand at 18% for the entire capital gain if you are a basic rate taxpayer (with income below £50,270) and 28% for the entire capital gain if you are a higher or additional rate taxpayer (with income above £50,270). The tax rates for other assets are different.

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CGT is a complex tax that applies to a range of assets, including property, shares, bonds, and precious metals.

Seeking professional advice from a professional accountant can help individuals navigate the complex CGT rules and regulations and ensure that they are paying the right amount of tax.

- Andrew Passer