Capital gains tax

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If you're planning on selling a business, or any asset that is likely to have increased in value, you need to know about capital gains tax. It can get complex, though, so consult an accountant if you need more help.

What is capital gains tax?

If you're selling an asset, any increase in the asset's value since you bought it is called the capital gain.

And if you're selling an asset that's gained capital (value), you're liable for capital gains tax (CGT).

You only have to pay it when your total gains are above a certain annual tax-free allowance.

What do you pay capital gains text on?

You pay Capital Gains Tax on the gain when you sell 'chargeable assets'. This include:

  • most personal possessions worth £6,000 or more, apart from your car

  • property that’s not your main home

  • your main home if you’ve let it out, used it for business or it’s very large

  • shares that are not in an ISA or PEP

  • business assets

If you sell or give away cryptoassets (like cryptocurrency or bitcoin) you should check if you have to pay Capital Gains Tax.

What's exempt from capital gains tax?

You do not need to pay capital gains tax on:

  • the sale of your home

  • transfers between married couples and civil partners

  • private vehicles (cars, motorbikes)

  • personal goods and effects worth less than £6,000

  • any assets passed over to a charity, museum or gallery are normally CGT-exempt

How do you calculate capital gains tax?

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount). The Capital Gains tax-free allowance is £12,300.

If you’re a higher or additional rate taxpayer you’ll pay:

  • 28% on your gains from residential property

  • 20% on your gains from other chargeable assets

If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

It is pretty complicated, so take a look at these examples on the HMRC capital gains tax rates page

HMRC also have these handy calculators to help you work it out.

How to pay capital gains tax

You pay through the self-assessment system, so it will just be part of your normal tax return and payments. It's calculated by working out the capital gain on each asset separately, then subtracting any allowable losses for each. The remaining totals for all your assets are then combined.  That's your net capital gains.

If your net allowable losses come to more than your net capital gains, you can carry over the surplus loss to offset your CGT in future years.

Capital gains tax relief

ReliefDescriptionEntrepreneurs' ReliefPay 10% Capital Gains Tax on qualifying profits if you sell all or part of your business (instead of normal rates)Business Asset Rollover ReliefDelay paying Capital Gains Tax when you sell or dispose of some types of asset if you replace themIncorporation ReliefDelay paying Capital Gains Tax when you transfer your business to a companyGift Hold-over ReliefPay no Capital Gains Tax if you give away a business asset - the person you gave it to pays tax when they sell it
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