Capital Gains Tax: What do you need to know?

Capital Gains Tax (CGT) is a tax applied on the profit you receive when disposing of an asset.

You are not taxed on the amount of money you receive, but on the gain you make.

For example, if you bought something for £10,000 and sold it for £20,000, you’ve made a gain of £10,000, and that is what will be taxed.

What do you pay CGT on?

CGT applies when you dispose of ‘chargeable assets’, including:

  • Personal belongings worth £6,000 or more
  • Property that’s not your main residence
  • Your main home if you’ve let it out or used it for business
  • Any shares that are not in an ISA or PEP
  • Business assets.

If you jointly own the asset with somebody else, you must pay CGT on your share of the gain.

If you are gifting the asset to someone, you may still need to pay CGT, but this is not usually the case if you are gifting to your spouse, civil partner, or a charity.

You do not pay CGT on certain assets, including any gains you make from:

  • Cash
  • Private cars
  • Assets in ISAs or PEPs
  • UK Government gilts and Premium Bonds
  • Betting or lottery winnings.

Record keeping

To determine your gains, you need to collect records which you must keep for at least a year following the Self-Assessment deadline.

If you filed your tax return late, or HM Revenue and Customs (HMRC) have launched a check into your return, you’ll need to keep them for longer.

For businesses, records must be kept for five years after the deadline.

How much will you pay?

The rate you pay will differ based on the amount of your total taxable income and the type of asset you are disposing of.

Across the 2020/2021 tax year, the basic rate on residential property gains was 18 per cent and 10 per cent on all other assets.

The additional rate of CGT was 28 per cent on residential property and 20 per cent on all other assets.

Need help on CGT and other tax-related matters? Contact us today.

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