When you sell an asset that has increased in value, such as property, cars or even shares, you will have to pay a tax on the profit, called Capital Gains Tax (CGT). In the UK, the current CGT rates are 10% or 20% for individuals (not including residential property and carried interest).
Why do you need to pay CGT?
If you’ve sold an asset which had increased in value and the gain, or profit, is greater than your annual CGT allowance – this is currently £12,300 for the 2022/23 tax year – you will need to pay CGT on the difference.
If the gain is less than your annual allowance, you don’t need to pay CGT but you will still need to report the gain on your next tax return.
When don’t you need to pay CGT?
If you’ve sold an asset which had increased in value and the gain, or profit, is greater than your annual CGT allowance – which for the 2022/23 tax year is £12,300 but will drop to £6,000 for the 2023/24 tax year – and you will need to pay CGT on the difference between your annual personal CGT allowance and the sale price.
If the gain is less than your annual allowance, you don’t need to pay CGT but you will still need to report the gain on your next tax return.
How to calculate your CGT bill
To calculate your CGT bill, you need to know how much your gain (profit) is by subtracting the original cost of your asset from the sale price.
For example, if you bought a share for £100 and then sold it for £150, your gain would be £50.
Now you know your gain, apply the relevant tax rate to calculate how much CGT you will need to pay. For the 2022/23 tax year, Gov.uk outlines the CGT rates as:
● 10% and 20% tax rates for individuals (excluding residential property and carried interest)
● 18% and 28% tax rates for individuals for residential property and carried interest
● 20% for trustees or for personal representatives of someone who has died (excluding residential property)
● 28% for trustees or for personal representatives of someone who has died for the disposal of residential property
● 10% for gains qualifying for Business Asset Disposal Relief (previously known as Entrepreneurs Relief)
● 28% for Capital Gains Tax on a property where the Annual Tax on Enveloped Dwellings is paid, the annual exempt amount is not applicable
● 20% for companies (non-resident Capital Gains Tax on the disposal of a UK residential property)
As you can see the rates vary depending on whether you’re an individual or a business and what it is that CGT may apply to. If you’re unsure what rate your gain is subject to, we’re always here to help.
How to pay CGT
How you report and pay your Capital Gains Tax depends on whether you sold a residential property in a residential property in the UK on or after 6 April 2020 or any other asset that’s increased in value in the time between purchasing and selling it.
To report your gain you’ll need to know:
● how much you bought and sold the asset for.
● when you bought and sold the asset.
● any other relevant details, like any costs associated with the purchase, improving the asset and any tax reliefs you’re entitled to.
Here to help
CGT can be a complex and confusing tax but to make sure you’re paying the right amount, it’s important to understand how the tax works. That way you will avoid paying more tax than you need to.
If you’re planning on selling an asset that has increased in value but are unsure whether you need to pay CGT, or how much CGT you owe, our experienced, professional tax advisers at Norwich Accountancy are on hand to help you.
