When Do You Pay Capital Gains Tax?
Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. It is added to your normal tax payment for the year you filled your taxes.
Capital Gains Tax is applied to the profit made from the sale or disposal of an asset that has increased in value. It is important to understand which assets are taxable, how to calculate the gain, and how to report and pay the tax to ensure compliance and avoid penalties. Always consider your annual tax-free allowance and seek professional advice if needed to manage your tax obligations effectively.
Here’s a detailed explanation of how CGT works, including when and how it applies.
Key Concepts of Capital Gains Tax
Tax on the Gain: CGT is levied on the profit (gain) you make from selling an asset, not on the total amount you receive from the sale.
Example: If you buy a painting for £5,000 and sell it later for £25,000, your gain is £20,000 (£25,000 - £5,000).
Tax-Free Assets: Some assets are exempt from CGT, such as your primary residence, personal belongings sold for less than £6,000, and certain types of investments like ISAs (Individual Savings Accounts).
Tax-Free Allowance: If your total gains in a tax year are below the annual tax-free allowance, you do not have to pay CGT. The allowance for the 2024/2025 tax year is £3,000.
Disposing of an Asset
Disposing of an asset can occur in various ways:
Selling It: The most common form of disposal.
Gifting or Transferring: Giving the asset away as a gift or transferring ownership to someone else.
Swapping: Exchanging the asset for something else.
Compensation: Receiving compensation, such as an insurance payout, if the asset is lost or destroyed.
Reporting and Paying CGT on UK Residential Property
If you sold a UK residential property on or after 6 April 2020 and have a gain to report, you must use a Capital Gains Tax on UK property account to report and pay the tax due. This must be done within 60 days of the sale.
Example Calculation
Scenario: Selling a Painting
Purchase Price: £5,000
Sale Price: £25,000
Gain: £25,000 - £5,000 = £20,000
If your annual gains are below the tax-free allowance, you do not owe CGT. However, if the gain exceeds the allowance, you need to report and pay CGT on the excess amount.
Steps to Calculate and Report CGT
Determine the Gain: Subtract the acquisition cost and any allowable expenses (e.g., selling fees, improvement costs) from the sale price to determine the gain.
Apply Tax-Free Allowance: Subtract your annual tax-free allowance from your total gains.
Report the Gain: If the remaining gain is above the allowance, report it to HMRC.
Pay the Tax: Calculate the CGT owed based on your tax rate and pay it within the required timeframe.
Additional Information
Assets Exempt from CGT: Certain assets are not subject to CGT, such as personal cars, your main home, and gifts to your spouse or civil partner.
Special Cases: Specific rules apply for assets like business properties and shares. For example, you may be eligible for Business Asset Disposal Relief, reducing the CGT rate on business assets.
Other Articles
Do You Pay Capital Gains Tax on Inherited Property?
Does a Company Pay Capital Gains Tax?
How to Calculate Capital Gains Tax
Need an Accountant for Capital Gains Tax?
Our team of tax specialists are here to help you every step of the way, from registering for self assessment to submitting your tax return. We offer fixed priced accountancy services and handle all of your self assessment filing responsibilities leaving you stress free and up to date.
Whether you have sold an asset or are planning on selling an asset, give us a call today for a free non obligated consultation to see how we can assist you.
Strategic Support for Your Business
Explore our comprehensive accountancy packages tailored to your business.
Self Assessment Tax Returns
From £85 per annum
Whether you are in the early stages of trading or considering starting a business, we can provide you a stress free and fixed price service when it comes to self assessment tax returns.
CIS Tax Returns
From £50 per month
Whether you are operating as a contractor or the sub-contractor, our specialist team will take control of all your CIS affairs from start to finish, leaving you to concentrate on your business.
Corporation Tax Returns
From £625 per annum
Are your Management Accounts, Corporation tax return and confirmation statement now due? Let us handle your entire end of year requirements for a fixed, competitive annual fee.
PAYE
From £50 per month
Whether you are a one man band, new start-up or mid-sized business, we have the flexible payroll solution for your business that allows you to pay your employees right, and on time.
VAT Returns
From £90 per submission
Our qualified and experienced team will prepare & submit your all-year-round VAT reporting and returns on your behalf for a fixed price monthly fee, no hidden costs or surprises.
Bookkeeping
From £35 per month
Provide us with your receipts, bank statements and invoices and we will give you reports on a monthly/quarterly basis allowing you to make decisions that grow your business.