Capital Gains Tax (CGT) is the tax applied to the profit made on an asset or property once sold. This typically occurs in scenarios of investment, where individuals will see the value of something increase, and sell it for a high profit. Therefore, CGT is only levied once the asset or property sale has been converted into currency – meaning the individual no longer holds it as an investment.
When to pay
The amount of CGT an individual must pay is dependent on several factors. In the UK, this is based upon your status as a basic-rate or higher-rate taxpayer and what the yearly tax free allowance stands at. The personal allowance currently stands at £12,300 and doubles to £24,600 when you enter into a marriage or civil partnership. If you are married or in a civil partnership, you can utilise the benefits of the higher personal allowance and mark assets under a joint name to reduce the amount of CGT you may have to pay. However, if you are unmarried, partners can both claim their main home as a different property – this means that couples cannot be taxed on the sale of a second home they may do together. It is also important that Britons are aware of what is or isn’t a taxable asset to avoid further complications. Common scenarios where CGT is imposed include the sale of jewellery or antiques, business assets, and shares. There are exemptions, but if Britons are considering selling on investments, one cannot assume the sale of their asset doesn’t warrant CGT.
How its calculated
CGT is calculated by taxing the amount of profit gained from the sale – not the lump sum of money the seller receives in the transaction. Sellers must consider the amount which they bought their asset for and can include costs which have contributed to the process of selling the asset when reporting your tax. In the UK, this is done either through the online Capital Gains Tax Service, or by a Self-Assessment form. This is where the tax-free allowance comes into play, as it is deducted from the profit made. If this falls above the threshold, the amount is added to an individual’s taxable income which is then taxed at the percentage according to the individual’s status as a basic or higher rate taxpayer.
If you concerned about what CGT means for you, there are many reputable professional services who can offer focused and relevant advice. Having the correct knowledge on Capital Gains Tax is imperative to investing and selling savvy.