Capital Gains Tax Specialist Accountant
Treetops Chartered Accountants
What is Capital Gains Tax?
When you sell (or ‘dispose’ of) an asset or possession worth more than £6,000, you must pay HMRC tax on the profit you make, known as Capital Gains Tax (CGT). The tax is due on your profit, i.e. the gain you have made, not the total sale value.
Both individuals and small businesses are required to pay CGT on the sale of assets such as high-value personal possessions, rental property, or business assets. Not all disposals are taxable (e.g. cars) and CGT is only due on any gain above your tax-free allowance.
‘Disposing’ of an asset is defined as more than just selling something; it also applies if you give an asset away as a gift, transfer ownership to someone else, trade it for something else, or receive compensation for it e.g. insurance claims.
Do I need a specialist accountant for capital gains tax?
Working out your capital gains tax bill can be complex and there are penalties for late payment and underpayment. You may also end up paying too much if you do not deduct allowable costs, or apply reliefs for which you are eligible, which is often the case.
With this in mind, seeking advice from tax accountants such as Treetops is very valuable. We have the knowledge and expertise to help you work out your chargeable gain and calculate your capital gains tax bill correctly. We will also help you ensure that your CGT bill is paid in good time so that you do not incur costly penalties. So do get in touch for advice, whether you are a small business, property investor or an individual who is unsure about their capital gains liability.
What is the current rate of capital gains tax?
The rate of CGT you pay tax on depends on what you are disposing of and which income tax band you fall into.
If you are in either the higher or additional tax rate bands, then you will pay the following on your taxable gain, after deducting allowable costs and your annual allowance:
- 20% CGT on the sale of assets
- 28% CGT on the sale of residential property (that is not your home)
If you are in the basic tax rate band then it can be a little more complex. First, you must work out your taxable gain and add it to your taxable income as a whole. Following that, you should deduct allowable costs and your annual allowance. If that total falls within the basic tax rate band (2021/22: £12,571 to £50,270) then you will pay:
- 10% CGT on the sale of assets
- 18% CGT on the sale of residential property (that is not your home)
On any incremental gains above the basic tax band, the higher rate of CGT will apply (i.e. 20% or 28%).
What is the capital gains annual allowance?
What do you pay Capital Gains Tax on?
Possessions and property on which CGT is due are known as ‘chargeable assets’, and fall into the following categories:
- Personal possessions with a value exceeding £6,000 (excluding cars), e.g. a valuable collection, jewellery, or art.
- Residential property that you do not live in, e.g. a holiday home, second home, or buy-to-let property. This includes overseas properties if you are a UK resident.
- Your home, but only if it is larger than 5,000 square metres, if you have let it out, or it has been used for business.
- Shares (but not those in an ISA or PEP).
- Business assets, e.g. materials, stock or office equipment.
Capital gains tax advice for landlords and property investors
There have been several changes to landlord legislation in recent years to the financial detriment of many property investors. So when it comes to CGT, it is more important than ever to know the deductions and reliefs you can apply to capital gain, to protect your profit and reduce your tax bill.
Small business tax reliefs
As a small business owner, it is important to be aware of certain reliefs available to reduce or delay your CTG bill. You may be eligible for:
- Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) – if you sell all or part of your business, then you may be able to benefit from a reduced CGT bill.
- Business Asset Rollover Relief – if you replace an asset that you have sold for business use then you may be able to delay your CGT bill.
- Incorporation Relief – if you transfer your business into a company in return for shares you may be able to delay your CGT bill.
- Gift Hold Over Relief -You may be able to claim Gift Hold-Over Relief if you give away business assets (including certain shares) or sell them for less than they’re worth to help the buyer.
If relatives choose to leave you their home upon their death you do not have to pay CGT straight away, but you may have to if you decide to sell further down the line. Or, you may have to pay Inheritance Tax (IHT).
The inherited value of the home is its market value at the time of death. This is included in the overall ‘estate’ value, which is the sum of all property and possessions minus debts and funeral expenses. The current inheritance tax allowance is £325,000 so you must pay the IHT rate of 40% on anything above that amount.
If you choose to sell the inherited property having never lived in it, CGT must be paid on the increase in value between the date of death and the sale date, after the annual allowance and selling costs are deducted.
Capital gains tax on overseas properties
Captain gains tax - non-UK residents
In most cases, you are only liable for CGT on the sale of overseas property if you are a UK resident. However, if you fall into the category of ‘temporary non-residence’, then the normal CGT rules may apply. Temporary non-residence is defined by how long you have spent out of the UK before returning and is somewhat complex. It exists to stop individuals from avoiding paying CGT by moving abroad for a time. If you are unsure about your non-UK status, then you should certainly consult a tax accountant such as Treetops.
If you sell a UK property whilst a non-resident taxpayer in the UK, then the normal CGT rules still apply and you must report your gain to HMRC within 30 days of disposal.
Capital gains tax advice for individuals
Capital gains tax is paid on the sale of personal possessions worth more than £6,000, not including your car. To work out your taxable gain, you must deduct any allowable costs and your annual capital gains allowance. The same Annual Exempt Amount of £12,300 applies, so you will only pay tax on gains (profit) above that figure. It’s important to note that your allowance cannot be rolled forward to the following year.
Married couples or those in a civil partnership benefit from a couples CGT allowance of £26,400. That means if you have joint ownership of the asset, you can double your capital gain before tax is due. Also, you are permitted to transfer assets to each other without any CGT being charged.
How and when to pay capital gains tax
For residential properties (that are not your main home) sold after the change in legislation on 6 April 2020, capital gain must be reported to HMRC within 30 days of the sale, by completing the necessary details on the Government Gateway website. Failure to do so will incur penalties.
For capital gain on other possessions, you can either:
Report and pay your tax straight away, You can use the ‘real time’ Capital Gains Tax service immediately if you know what you owe.
You need to report your gain by 31 December in the tax year after you made the gain. For example, if you made a gain in the 2020 to 2021 tax year, you need to report it by 31 December 2021.
report your gain in your Self Assessment tax return for the following year.
If you are an individual who is not registered for Self Assessment, then you will be required to report your gain by the first method, by accessing your personal tax account online.
Why do I need Treetops Accountants to help with my capital gain?
Computing the right amount of capital gains tax you owe has the potential to be a complex and challenging task. All too often, businesses or individuals end up paying more than they should. That’s where Treetops can help, to ensure you do not miss out on valuable tax reliefs that could significantly reduce your CTG bill. We will take away the headache of calculating your capital gains, eliminate the financial risk, save you time and provide you with peace of mind.
As experienced tax accountants, we can also advise you on other types of tax such as corporation tax, personal tax return (self-assessment)
Contact us to talk about capital gains tax, we look forward to hearing from you.
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