What is Capital Gains Tax?

Posted on Feb 20th, 2018 | Tax

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 profits and it applies to most assets when they’re sold. There are some exceptions, however – for example your car, your main place of residence if you own your home, and personal possessions sold for £6,000 or under are all exempt. You don’t pay Capital Gains Tax when you sell your car, unless you use it for business. There are also some complex rules for assets with an expected life of under 50 years.

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 gain is calculated, the 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 how much it was valued at the time you inherited so that you can calculate and if necessary report the gain on your tax return. It can be a good idea to keep a record of these assets so that if you ever do decide to sell, the process will be easier. This might also be useful in case you need to let your insurers know if it is particularly valuable.

How much can you currently gain before paying Capital Gains Tax?

For the tax year 2017-2018, you’re exempt from having to pay Capital Gains Tax on the sale of any assets if the profits made are less than £11,300. In the 2018-19 tax year the amount is £11,700. This is known as the annual tax-free allowance or the Annual Exempt Amount.

If you don’t already complete a Self Assessment you will need to register with HMRC by 5th October following the tax year in question to enable you to complete one.

Capital Gains Tax Rate

The following Capital Gains Tax rates apply for the tax years 2017-18 and 2018-19 (the tax rate you use depends on the total amount of your taxable income, so you need to work this out first):

  • 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 Entrepreneurs’ Relief.

Other rates and thresholds

The UK has many different tax rates affecting both individuals and businesses – and as a business owner you’ll be affected by all of them. Check out the Tax rates, thresholds, and allowances for 2018/9 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 client manager.

It’s everything you need to be in control of your business finances. And all from just £29.50 per month. You can call us on 0333 311 8000 or you can book a callback. We’ll be happy to discuss how we can help you.

Join Crunch Chorus:
The free community for the self-employed

You'll get access to a range of benefits, such as invoice software, jargon-free business guides, great networking opportunities, discounts, plus much more

Written by Tom West

Useful tools and resources

Business guides

Business guides

From understanding expenses to starting a limited company, we've a range of jargon-free business guides for you to download and keep.

Invoice templates

Invoicing software and templates

Create, send and store sole trader invoices in a snap with our free invoice software. You can also download a selection of invoice templates for all business types.

Take-home pay calculator

Take-home pay calculator

Use our Take-Home Pay Calculator to work out your true earnings and see if you could save money with a different company set up.

We make accounting simple

With Crunch, you’ll have unlimited advice and support from your dedicated client manager and our team of accountants, alongside innovative online accounting software so you can keep on top of your bookkeeping with ease. No appointments, no fuss.

Find out more
Our expert limited company accountants at Crunch