Capital Gains Tax (CGT) is a tax on the gain when you dispose of an asset that has increased in value. The tax is applied on the gain made and not the proceeds from the sale.
‘Disposing’ of an asset generally means:
A gain is the difference between the proceeds from the disposal of the asset and how much the asset cost when it was originally purchased.
The tax applies to individuals tax payers. This includes partnerships who are subject to the income tax system.
Any gains made on the disposal of the following assets would be subject to CGT:
CGT is not payable on:
The CGT rate you are charged depends on two things:
1. Whether you're a basic rate, higher rate, or additional rate tax payer and
2. The type of asset you've sold.
Disposals of residential property will attract a rate of either 18% or 28% depending on whether you are a basic tax rate payer or a higher/additional tax rate payer.
Disposals of all other assets will be subject to either 10% or 20% tax depending on whether you are a basic tax rate payer or a higher/additional tax rate payer.
For the tax year 2023/24, an individual earning up to £50,270 will be considered a basic rate tax payer (unchanged from tax year 2022/23) and those earning abve this amount will be considered high rate/additional rate tax payer.
If you are not registered for self-assessment and make a net gain in the tax year of up to £6,000 (£12,300 for tax year 2022/23), you do not need to file an income tax return however you should maintain details the disposals generating the gain for 6 years after the end of the tax year they arose in. This would be helpful if HMRC ever opened an enquiry into your tax affairs. .
However, it will become necessary for you to report the gain if:
1. If you are registered for self-assessment and make a net gain of over the annual capital gains allowance of £6,000 (£12,300 for tax year 2022/23), you should report it as a part of your income tax submission;
2. If you are registered for self-assessment and make disposal proceeds of over £24,000 (4 times the CGT allowance), the disposals will have to be reported in the income tax submission. This threshold is £49,200 for tax year 2022/23.
Disposals of Assets Other Than Residential Property
Gains made on disposals should be reported to HMRC via the income tax self-assessment return and any CGT paid to HMRC by the 31stJanuary following the end of the tax year in which the gains occurred.
Disposals of Residential Property
However, the reporting requiremnets are different when the disposed of asset is a residential property which is not your main residence. In this case, the gain or loss must be reported to HMRC within 60 days of the completion date via a HMRC Government Gateway account.
In order to make the report, individuals and trustees will need to login via the Government Gateway and register for a ‘Capital Gains Tax on UK Property’ account with HMRC. They can choose to report the disposal themselves, or authorise their tax adviser to report the disposal on their behalf.
Once the 60-day return is submitted, HMRC will issue a payment reference, under which a payment on account of the estimated CGT arising from the disposal can be made.
Filing a property disposal submission this way when you have no reason to file a self assessment income tax for the tax year of disposal will not require you to register and subit assessment return. However, if you do have to file a self assessment tax return, the details of the gain repoirted to HMRC on the slae of the residential property shoudl be included.
You can report losses made during the tax year, which are more than the gains made in the same period, in the income tax return. The benefit of this is that this loss can be carried forward against any gains arising in the future.
Disposals of Residential Property
You will get a late filing penalty and be charged interest if you do not do this by the 60-day deadline.
If you miss the deadline by:
This has already been mentioned earlier on in this guide.
This relief allows individuals who sell their business or shares in their company to pay CGT at the rate of 10% rather than at the higher rates of 18% and 28%.
This relief is available to:
If you sell a qualifying business asset and use the proceeds to buy a new qualifying business asset, you may be able to claim 'Business Asset Rollover Relief'.
In order to claim this relief, you must:
Business Asset Rollover Relief just postpones the CGT you'd normally pay on the old asset until you sell the new asset. Any gain belonging to the old asset is transferred ('rolled over') into the new asset. When you sell the new asset, your CGT liability will be calculated on this rolled-over gain plus any gain in value of the new asset since you bought it.
You must claim Business Asset Rollover Relief within 4 years of the end of the tax year in which the later of these 2 events occurred:
When you are filing your Self Assessment tax return for the tax year in which you sell the old asset, if you have not yet bought the new asset, you can declare your intention to do so. You will then get provisional relief. However, you must still buy the new asset within 3 years of selling the old one.
If you incorporate your sole trade or partnership into a company (i.e. sell your business to a company in which you own shares), you could postpone paying CGT by claiming incorporation relief. You wouldd need to transfer all the assets of the business (other than cash) to your company in return solely for shares in that company. The business must be transferred as a going concern.
If you claim Incorporation Relief, you will not pay CGT at the time of incorporation. Instead, the gain from the business is rolled into the shares of the company. The value of the shares on incorporation is adjusted by deducting the gain in the value of the business. When you sell the shares, you would pay CGT on the difference between the sale price and the adjusted acquisition value. This way you will then pay CGT on the gain rolled into the shares plus any gain in the value of the shares since incorporation.
Gifts Holdover Relief applies to:
It postpones the CGT on the gift until the recipient sells the asset. It applies both to assets used in your trade and shares in trading companies not listed on a stock exchange. Both the giver and recipient must agree to claim this relief.
Normally the giver of the asset would pay CGT. This would be calculated on the gain in value of the asset while it was owned by the giver. Instead of paying this CGT, the giver and recipient could claim Gift Holdover Relief. The gain will then be transferred to the recipient. The recipient will be treated as acquiring the asset at a value lowered by the amount of the gain. When the recipient sells the asset, they will pay CGT on the difference between the sale price and this adjusted acquisition value.