Capital gains tax (CGT) is the tax on the profit you make when you sell or ‘dispose of’ an asset and make a profit or ‘gain’. It is important to note that the tax is levied only on the gain made from the sale, not the total sale price. Disposal includes selling the asset, giving it away as a gift, transferring it, exchanging it, or receiving compensation for it, such as an insurance payout.
Capital Gains Tax is important whether you’re selling property, shares or valuable personal items, as each type of asset has different rules and rates. For example, selling a second home or investment property can attract a higher rate of CGT than other assets. Certain allowances and exemptions can also make a big difference to the amount of tax you pay. Understanding what constitutes a disposal is essential to ensure compliance with CGT regulations.
You will only pay CGT on gains that exceed your Annual Exempt Amount. For 2024/25 tax year, the threshold is set at £3,000, this was reduced from £6,000 in 2023/24, making it more likely that individuals would incur CGT on their gains. If your total gains are below you won’t need to pay CGT. It is also worth noting that these allowances are not transferable between spouses or civil partners, however, assets can be transferrable between spouses/civil partners with no CGT implications.
The rate of CGT you pay depends on your overall taxable income and the type of asset sold. CGT must be done by specific deadlines; these vary depending on the type of asset and the nature of the disposal. Adhering to these deadlines is important to avoid significant penalties and interest charges. HMRC imposes these penalties to encourage timely compliance and accurate reporting.
Capital Gains Tax can be daunting but we as professional accountants can provide assistance in managing and mitigating your CGT liability by keeping up with changes to the tax legislation. This enables us to provide ongoing support and proactive advice to adjust strategies and minimise future CGT liabilities. Our expertise in tax planning, compliance and strategic advice can help optimise financial outcomes and ensure full compliance with tax regulations.
For more tax planning advice, contact Paul at: pu@morriscrocker.co.uk
023 9248 4356