Capital Gains Tax: What You Need to Know

Introduction

Capital gains tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. It is the gain you make that is taxed, not the amount of money you originally paid for the asset.

Who is Liable for CGT?

You are liable to pay CGT if you are a UK resident and you sell an asset that is subject to CGT. This includes assets such as property, shares, and other investments.

How Much CGT Do I Pay?

The amount of CGT you pay depends on your individual circumstances and the type of asset you are selling. The current CGT rates are as follows:

• Basic rate taxpayers: 10% for residential property and 20% for other assets
• Higher rate taxpayers: 20% for residential property and 40% for other assets

Exemptions and Allowances

There are a number of exemptions and allowances that can reduce the amount of CGT you pay. These include:

• The annual CGT allowance: This is the amount of profit you can make on the sale of assets before you have to pay CGT. The current annual CGT allowance is £12,300.
• The main residence exemption: This exemption applies to the sale of your main residence. You do not have to pay CGT on the sale of your main residence if you have lived in it for at least two years.

How to Calculate CGT

To calculate your CGT, you need to work out the following:

• The sale price of the asset
• The original cost of the asset
• Any allowable expenses incurred in selling the asset

Once you have worked out these figures, you can use the following formula to calculate your CGT:

CGT = (Sale price - Original cost - Allowable expenses) x CGT rate

Conclusion

Capital gains tax is a complex area of law. If you are unsure about whether you are liable to pay CGT or how to calculate your CGT, you should seek professional advice.