What is Capital Gains Tax?
If you sell something for a profit you may be liable to Capital Gains Tax.
People think that CGT is quite complicated, which it is, but let’s have a look at what it actually means and when and why you may have to pay this.
What is an asset?
An ‘Asset’ is an item of property which holds some form of value.
Which assets do I have to pay CGT on?
Freehold land and buildings
Goodwill
Shares
Chattels* (a moveable item of personal property)
What is exempt from CGT?
Main Residence
Motor Vehicles
Certain chattels*
Investments in an ISA
Prizes and betting winnings
Foreign currency for personal use
NS&I certificates
Qualifying Corporate Bonds*
How much is CGT?
For Capital Gains Tax, there is also an Annual Exemption Allowance which for 24/25 is £3,000. This means that for any gains of £3,000 or below no CGT is payable.
In some cases Capital Losses in previous years can be used to reduce your Capital Gains in this year.
As in Income Tax, the percentages are based on your Tax Rate Band (which the gains contribute to)
Basic Rate: 10% CGT or 18% for Residential Property
Higher Rate: 20% CGT or 24% for Residential Property
Remember, your main residence is not liable to CGT so the higher rates only relate to additional properties. There are, however, rules on how a property is classed as your main residence.*
An Example:
James sold a holiday cottage for £100,000. He had bought this for £92,000 last year and the agent and solicitors fees totalled £5,000.
Sale Proceeds: £100,000
Selling costs: (£ 5,000)
Acquisition cost: (£ 92,000)
Gain: £ 3,000
As this is covered by the Annual Exemption Allowance (£3,000) no CGT is due from James.
*For more information on these items always speak to your accountants or tax advisers as they are complex areas which require a level of description which is beyond the purpose of this site. We can put you in touch.
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