Capital gains tax

An overview of Capital Gains Tax

Liz Pepper, our Senior Tax Manager gives an overview of Capital Gains Tax.

When you sell something you own – an asset – that has increased in value, you will often make a capital gain. Some capital gains are tax free and if the total of your capital gains in a year are under the tax-free capital gains allowance, you will not have to pay Capital Gains Tax (CGT).

In this article we will assume that the asset is sold rather than given away, transferred to someone else, or exchanged for something else. You can find out more on these other disposal methods at https://www.gov.uk/capital-gains-tax, although it is worth mentioning that giving an asset away can still give rise to a taxable gain.

Capital Gains

You will pay Capital Gains Tax when you sell:

• Personal possessions worth more than £3,000 – apart from “wasting chattels”, which are broadly assets with an expected useful life of less than 50 years. So this would usually include your car, assuming it is not a vintage classic;
• Property that is not your main home;
• Your main home if you have let it out, used it for business or is set in very large grounds;
• Any shares that are not in an ISA or PEP;
• Business assets;
• Cryptoassets – are a special case and you should check the latest guidance on this asset class

Reliefs

You may be able to claim a relief and if the asset is shared, you will only pay CGT on your share of the gain.  Reliefs can sometimes reduce the rate at which you pay the tax (e.g. on the sale of your business), it can defer the gain until a later date (e.g. holdover relief on the gift of a business asset or a gift into trust) or it can roll over the gain into replacement assets (e.g. rollover relief for business assets).  The reliefs are numerous and often complex and therefore it is worth checking whether you may be entitled to one of them.

You will not pay CGT if your total gains are below the annual tax-free allowance – currently £3,000 [£1,500 for Trusts] for the 2024-25 tax year – or on gifts to your husband, wife, civil partner or a charity, on gains from ISAs, PEPs, UK Government gilts or Premium Bonds or on betting, lottery or pools winnings.

Losses

If you make a loss when you sell a qualifying asset, they are referred to as allowable losses.  These need to be reported to HMRC and can then be used to offset any gains made in the same tax year, or you can carry forward any unused losses to future tax years to offset against future capital gains.

Reporting and Paying CGT

You must report and pay Capital Gains Tax within 60 days if you sell a qualifying UK property (essentially a residential property).  If you complete a self-assessment tax return then the disposal also needs to be included on the CGT pages of the return.  This applies irrespective of where you are tax resident.

All other capital gains are reported in the tax year you sold the asset using the Self-Assessment tax return.

Common Problems

In practice we regularly come across situations where clients have misunderstood the rules on CGT.  Common examples are:

• Sales of gardens for development;
• Gifts of assets between family members;
• Non-resident owners of UK property;
• Buying and selling land for development.

If you are considering any of the above, it is worth seeking professional tax planning advice.This article is generic in nature and you should take no action based on its content without seeking such advice from a professional advisor. Capital Gains Tax can be complex and there are penalties for getting it wrong.

If you would like to talk with us about your own circumstances, please do get in touch.