Capital Gains Tax

What is Capital Gains Tax (CGT)?

HMRC (Her Majesty's Revenue and Customs) Capital Gains Tax (CGT) is a tax levied on the profits or gains made from the sale or disposal of certain assets, such as property, shares, and valuable possessions.

The tax is applicable in the United Kingdom and is designed to ensure that individuals and businesses pay tax on the increase in value of their assets.

When an asset subject to CGT is sold or otherwise disposed of, the gain or profit made is calculated by deducting the original purchase price or acquisition cost from the sale proceeds. The resulting gain is then subject to the applicable CGT rates.

What are rates of Capital Gains Tax?

The rates of CGT vary depending on the taxpayer's income tax band.

For individuals, the current CGT rates are 10% for basic-rate taxpayers and 20% for higher and additional-rate taxpayers.

However, certain assets, such as residential property, may attract different rates. Non-residential property and carried interest are subject to a rate of 10% for basic-rate taxpayers and 20% for higher and additional-rate taxpayers.

Are there any Capital Gains Tax exemptions or reliefs?

There are various exemptions and reliefs available that can reduce or eliminate the CGT liability.

For example, individuals are entitled to an annual tax-free allowance, called the Annual Exempt Amount, which allows them to realize capital gains up to a certain limit without incurring any CGT liability. As of the 2021/2022 tax year, this amount is £12,300.

Other reliefs, such as Entrepreneur's Relief (now called Business Asset Disposal Relief) and Investors' Relief, provide more favorable CGT rates for qualifying individuals disposing of certain business assets or shares in qualifying companies.

What about the HMRC Self Assessment?

It is important to note that CGT is a self-assessment tax, meaning that individuals and businesses are responsible for calculating and reporting their capital gains to HMRC. The tax must be paid by the self-assessment deadline, which is usually January 31st following the end of the tax year in which the gain occurred.

Overall, HMRC Capital Gains Tax is a way to ensure that individuals and businesses contribute to the tax system when they make a profit from the sale or disposal of certain assets. The specific rules, rates, and reliefs can be complex, so it is advisable to seek professional advice or consult HMRC's guidance to ensure compliance with the relevant regulations.