CGT is a tax on the proceeds of the sale of anything you own. For an asset owned for more than a year, it is calculated from the profit generated, which is the rise in value of the sale price compared to the purchase cost.
Typically it’s applicable to:
• Shares
• Investment funds
• Second properties
• Inherited properties
• The sale of a business
• Valuables including art, jewellery, and antiques
• Assets transferred at below their market value
According to the UK Government, disposing of an asset includes:
• Selling it
• Giving it away as a gift or transferring it to someone else
• Swapping it for something else
• Getting compensation for it – like insurance payout if it’s been lost or destroyed
Capital gains on certain assets are currently taxed at rates distinct from income tax. This is because acquiring such goods is viewed as a risk, whether entrepreneurial or investment-related, and the higher burden of risk brings a bigger potential gain.
Provided a taxpayer sells their principal private residence (PPR)and makes a profit, there is no capital gains tax to pay if they resided in it throughout the ownership period. In this instance, any amount of gain can be earned without incurring CGT.
If you leave your PPR to move into a new PPR but continue to own your old PPR, the final nine months of ownership of that previous PPR are exempt from CGT under current rules.
Also, if capital gains tax is due when an asset is sold for a profit, there are four possible rates based on income levels.
• 10% tax rate – applies to lower rate taxpayers selling non-property assets;
• 18% tax rate – applies to lower rate taxpayers selling residential property;
• 20% tax rate – applies to higher and extra rate taxpayers who sell non-real estate assets.
• 28% tax rate – applies to higher and extra rate taxpayers selling residential property.
As a result, if you are a higher rate taxpayer and sell property that triggers a CGT duty, you must pay 28% tax on the gain within 60 days of disposal and file a property disposal return to HMRC. If in the next 60 days you need to file the self-assessment and pay your taxes, then you don’t need to file the property disposal return serprately.
Even if you are a non-resident for tax purposes, you must pay tax on profits made on property and land in the UK. Other UK assets, such as shares in UK firms, are exempt from Capital Gains Tax if you return to the UK within 5 years after leaving.
In a given tax year, you may make a profit on one asset while losing money on another. The good news is that your CGT bill can account for both profit and loss, which means that in some cases, you can remove the loss from the profit to compute your overall CGT liability.
You can also carry forward any losses that you have not utilised to offset your profits. This implies that you must report particular losses on your tax return even if you haven’t generated any profits and no CGT is owed. This is because it will be easier to offset any prospective future benefits against the loss.
If you have made large gains in cryptocurrencies, you should be aware that the government does not regard cryptocurrency as money. If you live in the UK and own crypto assets, you will be taxed on the gains.
This means that earnings from crypto assets are taxed in the same manner as profits from selling shares are taxed. CGT does not apply to unrealised (paper) profits in cryptocurrency; rather, it applies when you swap it for another cryptocurrency or convert it to pounds sterling, at which point your gains are realised.
The yearly CGT allowance is applied, as with other assets, and your gains are determined based on the difference between how much your cryptocurrency cost you and how much you sold it for.
However, you may not be required pay CGT if:
• The total gains are below your annual tax-free allowance, which is £12,300.
• You do not usually pay tax on gifts to your husband, wife, civil partner or a charity.
• If any gains are from – ISAs or PEPs, UK government gilts and Premium Bonds, and betting, lottery or pools winnings
You can also transfer assets between partners in a marriage or civil partnership to decrease your CGT liability. If you transfer an item to a partner and then sell it for a profit, the amount of CGT owed will be calculated based on the entire period you possessed the asset as a pair, not the date it was transferred to your partner.
It is recommended that this should be noted that this should always be done after seeking particular guidance because different reliefs may be available. In WIM Accountants we have team of tax specialists who can assist you in CGT tax planning, calculations, and reporting to HMRC.
Originally posted 2022-08-17 15:33:43.