Capital Gains Tax
Capital Gains Tax (CGT)
Capital Gains Tax is a tax on a profit you make from disposing of your personal asset worth £6,000 or more, not the money you receive from the sale. Expenses that relate to the sale and purchase of the asset such as legal fees are allowable. Losses made from the disposal can be set against gains from another sales and tax is calculated on the total profits.
There are reliefs such as Rollover Relief, Gift Relief or Business Asset Disposal Relief (previously known as Entrepreneur Relief) available to either reduce or defer the CGT that you have to pay if certain conditions are met. Disposal here means:
1) selling
2) giving your asset away or gifting
3) transferring your asset to someone else
4) swapping your asset for something else
5) receiving compensation for the stolen or damaged asset e.g insurance
Assets that have useful life of less than 50 years (called wasting chattels) are exempt from Capital Gains Tax so no tax to pay on the gains made. Losses incurred from sale of exempt assets are also not allowed to offset against other gains. This means if you sell wasting chattels, such as racehorses, and make (big) profits, you will pay no CGT at all. Exempt assets include cash, UK government securities (gilts), cars, racehorses and greyhounds.
CGT reporting & payment
UK resident
How UK residents report and pay CGT on their gain depends on the type of asset disposed of:
1) for a UK residential property and land, CGT must be reported and paid within 60 days of sale completion date even if a filing of self assessment tax return is intended. Exception is when a self assessment is submitted before the 60-day reporting deadline or the deadline for filing the tax return is before this 60-day limit
2) for other gains that are not from a UK residential property, for example, sale of shares in a UK company, you can choose how and when to report your CGT:
2.1) using the real time Capital Gains Tax service (government gateway is needed)
2.2) report and pay tax in a self assessment tax return
Non-UK resident
A non-UK resident must report their UK property (residential & non-residential) or land sales as non resident, whether or not they have tax to pay, make a loss on the disposal and are registered for self assessment, by using a Capital Gains Tax on property account and:
1) reporting a disposal and paying Capital Gains Tax on UK residential property within:
1.1) 30 days of disposal if the completion date was between6 April 2020 and 26 October 2021
1.2) 60 days of disposal if the completion date was on or after 27 October 2021
2) reporting & paying on indirect disposal of property if:
2.1) a non-UK resident sell their property or land
2.2) UK non-residential property or land
2.3) mixed use UK property (both residential and non-residential use) or land
2.4) their rights to assets if at least 75% of their value are from UK land
Organisations & CGT
Organisations such as limited companies do not pay Capital Gains Tax. Any gain that the company makes from selling its assets (called chargeable gain) is included in Corporation Tax calculations. An indexation allowance, up to December 2017, is available to reduce its chargeable gain and tax to pay. The CGT liability will be part of the corporation tax payable.
CGT rates
Unless CGT reliefs apply, the CGT rates for individuals are:
a) 18% (basic rate taxpayers) and 24% (higher and additional rate taxpayers) on gains from residential property
b) 18% (basic rate taxpayers) and 24% (higher and additional rate taxpayers) on gains from other chargeable assets
c) 32% (basic, higher and additional rate taxpayers) on gains from investment fund carried interest
Unlike individuals, a company pays tax on its chargeable gain at the same rate as its corporation tax.
Annual Exemption Amount (AEA)
Each individual is entitled to an Annual Exemption Amount, which is similar to the Personal Allowance. It is an amount of gain everyone can make without having to pay tax each tax year. The AEA from 2024-25 tax year is £3,000. Only gains above the AEA are subject to CGT. However, the AEA is wasted if, in any tax year, no asset is disposed of because the AEA cannot be carried forward to the following year.
In contrast, a company does not get an AEA as individuals do because the company gets an indexation allowance instead.
Exempt transfers
Special Capital Gains Tax rules apply when assets or gifts are disposed of or transferred:
1) between spouses or civil partners unless:
1.1) they are separated or do not live together at all in the tax year
1.2) gifts or assets are given to spouse’s or civil partner’s business to sell
2) to a registered charity
So a husband transferring or disposing of his assets to his wife or civil partner (for personal use) and vice versa will be exempt from CGT and a transfer to a charity, will also be exempt from Capital Gains Tax.
CGT services
Gains made from selling asset(s) worth £6,000 or more need to be reported and tax paid. Gain from disposing of a private residence is normally exempt from CGT while gains from selling residential properties (such as buy-to-let ones) are not.
There are new requirements for CGT payment and report of the gains made from the disposal of residential properties on or after 6 April 2020.
If you look for peace of mind services for your CGT calculation and reporting, feel free to contact M&W Accountancy Services, accountants in Bracknell.