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Capital Gains Tax (CGT) is an important consideration for individuals and businesses selling assets in the UK. Understanding how CGT works can help you minimize your tax liability and make informed financial decisions.
What Is Capital Gains Tax?
CGT is a tax on the profit (gain) made when selling an asset that has increased in value. The tax applies to various assets, including:
- Property (except your main home in most cases)
- Shares and investments (outside ISAs and pensions)
- Personal possessions worth more than £6,000 (e.g., art, antiques, jewelry)
- Business assets
Assets Subject to CGT:
- Shares: Profits from selling shares outside of an ISA.
- Property: Gains from selling a second home or investment property (your main residence is usually exempt).
- Business Assets: Profits from selling business assets.
- Personal Possessions: Items worth more than £6,000 (excluding your car).
- Cryptocurrencies: Profits from selling or disposing of cryptocurrency assets.
Assets Typically Exempt from CGT:
- Your Main Residence: Profits from selling your primary home (subject to certain conditions).
- ISAs (Individual Savings Accounts): Gains within an ISA are tax-free.
- Premium Bonds: Winnings from premium bonds are tax-free.
- Certain Personal Possessions: Items worth less than £6,000.
- Gifts to Your Spouse or Civil Partner: Transfers between spouses are generally exempt.
Capital Gains Tax Allowances & Rates (2024/25)
Each individual has a tax-free CGT allowance:
- £3,000 per tax year (reduced from £6,000 in 2023/24)
- Gains above this threshold are taxed at different rates:
- Basic-rate taxpayers: 10% (or 18% for residential property)
- Higher & additional-rate taxpayers: 20% (or 24% for residential property)
How to Calculate Capital Gains Tax
To calculate your CGT liability:
- Determine the gain – Sale price minus original purchase cost and any allowable expenses.
- Apply the tax-free allowance – Subtract £3,000 from total gains.
- Determine the tax rate – Based on your income tax band.
- Calculate tax owed – Apply the relevant CGT rate to the taxable gain.
Ways to Reduce Your CGT Liability
- Use ISAs & Pensions – Investments held in ISAs and pensions are CGT-free.
- Transfer Assets to a Spouse – Transfers between spouses or civil partners are exempt from CGT.
- Offset Capital Losses – Losses on other assets can be used to reduce taxable gains.
- Spread Gains Over Multiple Years – Use multiple tax years to stay within the CGT allowance.
- Business Asset Disposal Relief – Entrepreneurs selling qualifying business assets pay a reduced 10% CGT rate.
Reporting & Payment Deadlines
- For property sales: CGT must be reported and paid within 60 days.
- For other assets: Declare CGT via a Self-Assessment tax return by 31 January following the tax year.
Final Thoughts
By understanding CGT rules and applying tax-efficient strategies, you can reduce your liability and retain more of your profits. Seeking professional tax advice can help you navigate CGT complexities and optimize your financial planning.
To know more in detail, visit our official website: https://cbmaccounting.co.uk/ .
