Capital Gains Tax comes into play when you make a profit from selling something you own. The important point to remember is that the tax is calculated on the profit you make, and not the amount you sold it for. As the name suggests, it’s all about the gain!
So, Capital Gains Tax is essentially a tax on any profit you made on the disposal of an asset and it applies to most assets when they’re sold. There are some exceptions, for instance you don’t pay Capital Gains Tax if you sell your main place of residence or on personal possessions sold for £6,000 or under.
There are some complex rules for assets with an expected life of under 50 years. Please seek expert advice if you need it.
Capital Gains Tax also applies to assets received as gifts from other people (though not usually your spouse or civil partner). A valuation needs to be made of how much the asset is valued at when gifted, and if a capital gain arises when you dispose of the asset, tax is applied. There is tax relief available for gifts, so please speak with an accountant for more advice.
If you inherit an asset then you won’t have to pay Capital Gains Tax until you sell it – at which point you will need to know its value at the time you inherited it. This will allow you to calculate and if necessary report any capital gain on your tax return, and you can read our step-by-step guide on filing your return fore more advice. It can be a good idea to keep a record of these assets so that if you ever do decide to sell, you’ll have the necessary information to hand. This might also be useful in case you need to let your insurers know if an asset you inherit is particularly valuable.
How much can you currently earn before paying Capital Gains Tax (CGT)?
Your tax-free allowance on Capital Gains for the 2022/23 tax year is £12,300, which is the same as the 2021/22 tax year.
You pay most types of CGT you owe as part of your annual Self Assessment. However, if you have CGT to pay as a result of selling a property which is not your main residence, from 6th April 2022, you must pay the amount you owe to HMRC within 60 days of the date of disposal.
If you don’t already complete a Self Assessment you’ll need to register with HMRC by 5th October following the end of the tax year in question to enable you to submit one.
Capital Gains Tax Rates
The tax rate you pay depends on the total amount of your taxable income and your marginal rate of personal tax, so you need to work this out first. Once you've determined this figure, you can utilise our capital gains tax calculator to understand the amount you will need to pay.
The following Capital Gains Tax rates apply for the tax years 2022/23 and 2021/22:
- 10% or 20% tax rates for individuals (not including residential property)
- 18% or 28% tax rates for individuals for residential property and carried interest
- 20% for trustees or for personal representatives of someone who has died (not including residential property)
- 28% for trustees or for personal representatives of someone who has died for disposals of residential property
- 10% for gains qualifying for business assets disposal relief.
Gains on sale or disposal of overseas or foreign assets
You may have to pay Capital Gains Tax even if your assets are held overseas. It’s important to know if you’re a UK tax resident or not, as this can affect the tax you pay and whether you’re entitled to any allowances or exemptions.
There are special rules surrounding Capital Gains Tax if you’re a UK resident but not ‘domiciled’ in the UK (eg. if you work in another country and earn income there). You should speak to an accountant to understand more about your own personal situation.
Other rates and thresholds
The UK has many different tax rates affecting individuals and businesses – and as a business owner you’ll be affected by all of them. Check out the Tax rates, thresholds, and allowances article for more information.
Where can I get more help?
If you’ve got questions about tax and how it affects you or your business, maybe you need support from an accountant?
At Crunch, we offer a complete online accounting service. Get simple online accounting software, unlimited access to advice from expert accountants, and your very own team of client managers.
It’s everything you need to be in control of your business finances. You can call us on 0333 242 7179 or you can book a callback. We’ll be happy to discuss how we can help you.