Capital Gain tax (CGT) is a tax you pay on the gains you have made by selling or disposing an asset. Disposing an asset includes selling it, giving it away as a gift, swapping it with someone else, or getting compensation of it, like an insurance pay out when it’s lost or destroyed.
Capital gain is the difference between what you have paid for the item and at what you have sold it. However, in certain cases, you need to use market value of the item instead of the amount you have purchased it for, and these are:
- It was a gift,
- You sold it less than the worth,
- You inherited it,
- You owned it before April 1982, or
- You acquired the shares through certain Employee Share Schemes.
You pay CGT on the profit you have made, as an example if you have purchased an asset at a cost of £10,000 and sold it at a cost of £20,000, then you pay CGT on the profit amount £10,000 (i.e., £20,000 – £10,000). You pay CGT if sum of all your gains, excluding the assets which are tax-free, in a year is above the tax-free allowance. Capital losses incurred from the sale or disposal of assets can be used to offset capital gains, reducing the overall tax liability. Unused losses can often be carried forward to future tax years.
Capital gains above the annual exempt amount (£3,000 for tax year 2024-25 and £6,000 for the tax year 2023-24) are subject to CGT at various rates depending on the individual’s income tax band.
- 10% for basic rate taxpayers.
- 20% for most assets for individuals at higher rate and additional rate taxpayers.
- 28% for residential property and carried interest (profits from certain types of investment funds) for individuals at higher rate and additional rate taxpayers.
- Additional rate taxpayers, those with taxable income above the additional rate threshold, may pay capital gains tax at the higher rate of 28% for most assets and 36% for residential property and carried interest.
- If you are a trustee or personal representative of someone who has died, the n you pay 28% on residential property and 20% on other chargeable assets.
How to calculate if you need to pay CGT on your gains in a year?
Let’s understand how you can calculate the tax you own to HMRC.
Let’s suppose your total income for the tax-year 2023-24 is £50,000. Deduct the tax-free personal allowance from this and now your taxable income is: £40,000 – £12,570 = £27,430.
Your total gain for the year is £10,000. Now deduct the tax-free allowance from the amount for the year 2023-24: £10,000 – £6,000 = £4,000. So, your total taxable gain is £4,000.
Now add the taxable income to understand under which tax rate band you fall for the year 2023-24: £27,430 + £4,000 = £31,430.
This amount is less than 37,700, which falls under basic tax rate band, which means you will pay 10% CGT on the gains, i.e.,
Tax on CGT = 10% of £4,000 = £400.
| On What Assests you PAY CGT | On what Assets you DO NOT PAY CGT |
| Personal possession worth more than £6,000, except your car | Gifts to your husband, wife, civil partner, or a charity |
| Additional property other than your main house | Total gain below tax-free allowance. |
| On Mian house if you have let it out, used it for business purpose or it’s very huge. | Gains made from ISA or PEP, UK government gilts and Premium bonds, or betting, lottery or pools winning. |
| Any shares that are not ISA or PEP | When you inherit an asset when someone dies. |
| Business shares | |
| Overseas assets | |
| If you are abroad, you need to pay CGT on property or land in the UK | If you are abroad, no CGT on few assets like company shares. |
You must report and pay any Capital Gains Tax to HMRC due on UK residential property within:
- 60 days of selling the property if the completion date was on or after 27 October 2021
- 30 days of selling the property if the completion date was between 6 April 2020 and 26 October 2021
