The complexities of Capital Gains Tax can be challenging to get your head around. We often receive many enquiries, with questions such as…
What is Capital Gains Tax? What do you pay Capital Gains Tax on? Do I have to pay Capital Gains Tax on a property I joint own? Do I have to pay Capital Gains Tax on an inheritance? What is exempt from Capital Gains Tax? What are Capital Gains Tax rates?
Read on for answers to these questions.
What is Capital Gains Tax?
Capital Gains Tax is the tax you are charged on the profit you make from ‘disposing of’* an asset which has appreciated in value. A good example of this is when you buy a house, fix it up and then sell it on for more money than you spent on buying and fixing it up. The profits of this would be taxed and that is Capital Gains Tax.
* Disposing of an asset includes the following:
- selling it;
- giving it away as a gift (except inheritance, see below);
- swapping it for something else;
- getting compensation for it. I.e. An insurance pay-out if it’s been lost or damaged.
What do you pay Capital Gains Tax on?
- Property that you don’t live in;
- Possessions worth more than £6000, cars are exempt from this;
- Property that you live in, if it’s very large, if you’ve rented part of it out, or if you’ve used it for business;
- Shares (ISAs and PEPs are exempt from this);
- Business assets;
- Cryptocurrency or bitcoin sales in some cases but the rules are complicated and rapidly changing so you should seek more guidance.
Do I have to pay Capital Gains Tax on a property I joint own?
If you joint own something that falls within the categories listed above, then you have to pay Capital Gains Tax on the profits you received from your portion of the sale.
Do I have to pay Capital Gains Tax on an inheritance?
No. Inheritance Tax is normally paid by the estate of the person who has died. However, if you later decide to dispose of the asset, then at that point, you would have to pay Capital Gains Tax.
What else is exempt from Capital Gains Tax?
- Lottery wins, betting wins or pools wins;
- UK Government gilds and premium bonds;
- Gifts to your husband, wife, civil partner or a charity;
- Any gains that are below the tax-free allowance amount (£12,300 for individuals)
What are Capital Gains Tax rates?
On properties the rates are as follows:
- No Capital Gains Tax on selling the property which you live in;
- If you pay a higher rate of income tax, then it’s 28% on the gains from a residential property and 20% from the gains from other chargeable assets;
- If you pay the basic rate of income tax then the rate is calculated based on the size of the gain, your taxable income and if the gain is from a residential property or other assets. The rules can be quite complicated so it’s best to seek advice.
Some other points to consider in terms of Capital Gains Tax are as follows:
- If the disposal of an asset is eligible for another form of tax, for example, inheritance tax, then a credit is given to avoid being double charged.
- Non-UK residents, who remain non-resident for a qualifying time period, are not charged Capital Gains Tax on UK assets
- Records should be kept as to when the asset was disposed of in order to ensure that the gain is declared in the correct tax year.
The above article answered the following questions: What is Capital Gains Tax? What do you pay Capital Gains Tax on? Do I have to pay Capital Gains Tax on a property I joint own? Do I have to pay Capital Gains Tax on an inheritance? What is exempt from Capital Gains Tax? What are Capital Gains Tax rates?
As you can see, the rules regarding Capital Gains Tax are complicated so it is advisable to seek professional advice. For more details or to discuss further, please feel free to get in touch with our experienced team who will be happy to assist you.