Capital Gains Tax Rates and Allowances
Capital gains tax (CGT) is a complicate subject. We do cover the main issues, though you to where you may find extra help.
The 30-day deadline for the reporting of chargeable gains on UK residential property disposals and payment. The Capital Gains Tax (CGT) has been a challenge for taxpayers.
Even for the most straightforward sales, issues with the HMRC registration system have hampered the process and caused delays. For more complex transactions, there have been added hurdles. Such as the need to obtain a valuation, locating extensive historic capital enhancement information. Other issues establishing details of owner-occupation and permitted absences to calculate main residence exemption. In some instances, all of these factors may be thrown into the mix.
For those who were unable to accurately quantify their gain and disclose it in time. The only option was to file and settle late (with the risk of consequent interest and penalties). The return summation is a timely and payment, based on best estimates. Any overpayment make can tricky and slow to reclaim. Fortunately, the government has listened to recommendations made by the Office for Tax Simplification. It’s double the timeframe so that taxpayers whose disposals complete after today. Taxpayers will have 60 days to report and pay their property CGT.
What is Capital gains tax (CGT)?
Capital gains tax is a tax charge. If you sell, give away, exchange or otherwise dispose of an asset and make a profit or ‘gain’.
It is not the amount of money you receive for the asset. But the gain you make that is tax.
Broadly, to calculate the gain, you compare the sale proceeds (or value of the asset at the time it was disposed of) with the original cost of the asset (or value when it was acquired).
When do you need to pay CGT?
Capital gains tax is a tax charge apply to the gain from the sale of something you own. It’s calculate from the gain made. The increase in value of the sale price compare to the purchase price. For an asset held for more than one year. You need to have made a certain amount of profit on your items to be taxed on them. This amount depends on whether you’re a basic-rate or higher-rate taxpayer. What the current tax-free allowance is for the tax year.
Typical investments that you might have to pay capital gains on include:
- a second property or buy-to-let
- shares and funds, unless they’re held in an Isa or pension
- the sale of a business
- Investment funds
- Inherited properties
- Assets transferred at below their market value
- valuable possessions (see more detail below) if they’re sold for more than £6,000.
Capital gains on these assets are currently tax at different rates than those of income tax. This is because purchasing such assets is seen as taking a risk, either entrepreneurial or investment. So the additional burden of risk carries greater potential reward.
How much is Capital Gains Tax in the UK?
The Capital gains tax rate you’re charge depends on two things:
- Whether you’re a basic rate, higher rate, or additional rate tax payer
- The type of asset you’ve sold
For the 2020/21 tax year the Capital gains tax calculator UK are as follows:
CGT on residential property CGT on other assets
Basic rate tax payer 18% 10%
Higher/additional rate tax payer 28% 20%
What is the date of disposal?
The date of disposal for Capital gains tax calculator is the date that you enter into an unconditional contract.
This means that for property, this is the date that contracts are exchanged. It is not the date of completion when possession of the property is actually taken.
However, note that the 30-day window for reporting any capital gains tax due on disposals of UK residential property (or, if you are non-resident, for reporting all disposals of UK land or property) begins from the date of completion.
For shares, it is the date the bargain actually took place. It is not the date of the contract note or the date of settlement.
If, instead, you enter a conditional contract. The relevant date is the date when the conditions are satisfy. Let’s say, for example, someone agreed to buy a house that you own on the condition that the broken-down central heating boiler is replaced. The terms of that work might be set out in an agreed contract. The disposal date for the house for CGT purposes would be when the work was agreed to have been completed to the terms of the contract, not the date the contract was agreed.
How cryptocurrency gains are taxed?
If you have invested in cryptocurrencies. This has resulted in big gains. You need to understand that the government don’t treat crypto as money. If you are UK based and hold crypto assets. Then you will tax on the related profits.
This means you’re tax on the gains from crypto assets. In the same way as CGT is apply to the profits generated from selling shares. CGT doesn’t apply to the paper (unrealised) gains of crypto. Rather when you trade it for other cryptocurrency, or convert. It into pounds sterling at which point your gains are realise.
As with other assets, the annual CGT allowance is apply. Your profits are calculate base on the difference between, how much your cryptocurrency cost you versus how much you sold it. You also need to take account of the 30 day rule. This prevents people from using their CGT allowance each year by selling shares. Then buying them back the next day. Doing this can increase the purchase price and therefore potentially help minimise CGT exposure.
Instead, is you sell shares then have to wait 30 days before re-investing in those very shares. If you don’t wait 30 days then “matching” rules apply which in effect stop the cost base from being reset. Cryptocurrencies can trade often which then makes it difficult to work out the CGT liability.
Whilst you can purchase assets using cryptocurrency, this in itself can trigger a CGT liability. For example, if you purchase an asset for £100,000 using Bitcoin, and your bitcoin cost you £90,000 then there is a CGT charge on the £10,000.
Of note, cryptocurrency also forms part of your estate as an asset. This means it’s also potentially subject to inheritance tax should you pass it down to beneficiaries in the event of your death.
Deducting losses from your CGT bill
CGT is charged on your total gains each tax year. So if you make a profit when selling one item, but a loss when selling another, you can deduct the loss from the gain before working out how much tax you owe. While you can’t carry forward any unused allowances, you are allowed to carry forward any losses that haven’t been used to offset gains. Even if you don’t owe any CGT, it’s important to submit details of losses in your tax return to make it easier to offset them against a potential gain in future years.
How do I work out the tax I will pay?
As noted above there are two main sets of rates of CGT, 10%/18% and 20%/28%. The rate you pay depends upon the amount of your total taxable income and the type of asset disposed of.
When you take your personal allowances and any other deductions such as allowable work expenses from your income you arrive at a figure we call your total taxable income.
If you are taxed at the basic rate of tax on your total taxable income, you pay CGT at 10% (or 18% if the asset disposed of is a residential property) on any capital gains falling within the basic rate band.
If you have income taxable at the higher rate of 40% and/or the additional rate of 45% your capital gains are taxed at 20% (or 28% if the asset disposed of is a residential property).
So if your total taxable income and gains after all allowable deductions – including losses, personal allowances and the CGT annual exempt amount – are less than the upper limit of the basic rate income tax band (£37,700 for 2021/22), the rate of CGT is 10% or 18%. For gains (and any parts of gains) above that limit the rate is 20% or 28%.
When do you have to pay Capital Gains Tax?
CGT isn’t as simple as declaring your gain and applying the relevant rate. Firstly there is the annual CGT allowance of £12,300. This is the amount of profit you can make before CGT is applied. If you’re gains are under this amount in the tax year then there is no CGT liability. However, you can’t carry forward to the following year if you don’t make use of the allowance when selling your assets.