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Capital Gains Tax
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Capital Gains Tax (CGT) applies when selling assets like buy-to-let properties. Profits from the sale incur tax, but if gains fall below your tax-free allowance, CGT is unnecessary. To optimize your tax liability, consider consulting an accountant for capital gains tax advice. These capital gains tax accountant can offer valuable insights and strategies to minimize your tax burden while ensuring compliance. If you're seeking assistance, look for a nearby accountant for capital gains tax who can provide expert guidance for your specific tax planning needs.

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What is capital gains tax?

Rules around Capital Gains Tax can be quite complex

Capital Gains Tax is a tax on the profit when you sell or ‘dispose of’ something an ‘asset’ that’s increased in value and you've had a capital gain. Some assets are tax-free. You also do not have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.

Below are all the details and Capital Gains Tax advice.

Examples of chargeable assets

  • Property that isn’t your main residence e.g. a buy to let property
  • Cryptocurrencies and other digital assets
  • Stocks and shares that are not in an ISA
  • Any personal possessions that are worth more than £6,000 – excludes your car
  • Business assets

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Capital Gains Tax on property for non-UK residents
Capital Gains Tax on property for non-UK residents

Capital Gains Tax on property for non-UK residents

You must report all sales of UK property or land (residential and non-residential) if you’re not a UK resident, even if you have no tax to pay.

Capital Gains rates and rules

If you pay basic rate Income Tax

If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

Capital Gains Tax on UK Residential Property

You do not pay CGT if you are selling your main residence, however any other properties you own could be subject to CGT if you have made a gain. Examples of these properties include buy to let, business premises, land and property that you have inherited.

In most cases, you won't need to pay CGT when selling the property you live in, because you will be entitled to 'private residence relief'.

You won't need to pay CGT for the time a property was your main residence, plus the past nine months of ownership (even if you weren't living in the property during those nine months).

You pay a different rate of tax on gains from residential property than you do on other assets. Basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional-rate taxpayers pay 28%.

How much is the capital gains tax on property?

If you sell a property in the UK, you might need to pay capital gains tax on property on the profits you make.

You generally won't need to pay the tax when selling your main residence.

If you are selling a buy-to-let property or second home, you may face a Capital Gains Tax bill. . You may need to pay CGT if your home is partly used as a business premises, or if you lease out part of your property. You may get tax relief if you sold a property that used to be your main home.

Capital Gains Tax on UK Residential Property
What can I deduct from my taxable gain on property
What can I deduct from my taxable gain on property

What can I deduct from my taxable gain on property?

Certain costs can be deduced from your gain when buying and selling a property. These include:

  • solicitor and estate agent fees
  • stamp duty when buying the property.

Costs involved with improving the property, such as building an extension, can also be considered when working out your taxable gain.

However, you cannot deduct costs involved with the upkeep of a property and you cannot deduct mortgage interest from the gain either.

Capital Gains advice for landlords and property investors

If you’re a landlord, part of your process of planning investments and your next property purchase may involve assessing the potential for capital gains.

Landlords who invest in property to take advantage of property market price growth will almost certainly face a Capital Gains Tax bill now or in the future.

Capital Gains on inherited properties

if the home you’ve inherited has gone up in value since you inherited it, you may have to pay Capital Gains Tax if and when you decide to sell it.

The only ways to avoid paying Capital Gains Tax on an inherited property are:

  1. Make the inherited property your principal residence
  2. Sell or gift the property as soon as you inherit it

To find out more read here.

Capital Gains Tax on overseas properties

Generally, if you are resident in the UK, you are liable to pay Capital Gains Tax (CGT) when you sell (or dispose of) an overseas property at a gain.

You may also have to pay tax in the country where the overseas property was located. If you are subject to paying double taxation, there may be reliefs available depending on what tax agreements are in place with the UK and the country where you made the taxable gain. There is also additional guidance available for dual residents.

There are special rules if you are resident in the UK, but your permanent home or domicile is abroad.

Seek advice from a tax professional.

Reporting Capital Gains losses

When you report a loss, the amount is deducted from the gains you made in the same tax year.

If your total taxable gain is still above the yearly tax free allowance, you can deduct unused losses from previous tax years. If they reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.

Claim for your loss by including it on your tax return. If you’ve never made a gain and are not registered for Self Assessment, you can write to HMRC instead.

You do not have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset.

Capital Gains Tax on overseas properties
Do I need to pay Capital Gains Tax on shares
Do I need to pay Capital Gains Tax on shares

Do I need to pay Capital Gains Tax on shares?

With other assets, such as shares, the basic-rate of CGT is 10%, and the higher-rate is 20%.

Special Capital Gains rules for shares and unit trusts

Gains made on the sale of shares and unit trusts have special CGT rules.

Capital growth from unit trust investments could be subject to either income tax and/or Capital Gains Tax. The amount of tax you may potentially be liable for depends upon the type of share class you have chosen and the level of income or capital growth you have received.

Unless they're held in a pension or ISA, you will need to consider Capital Gains Tax when selling shares, funds, investment trusts, cryptocurrencies such as Bitcoin, or other financial products for a profit.

The special rules are complex, so contact dns accountants for help and Capital Gains Tax advice about your Capital Gains Tax liabilities on the sale of shares etc.

Reporting and paying Capital Gains Tax

You must report any capital gains and pay any money you owe by specific deadlines set by HMRC.

When you must report and pay:

If you sold a residential property in the UK with a completion date on or after 27 October 2021, you must report and pay CGT within 60 days.

If you sold a residential property in the UK with a completion date between 6 April 2020 and 26 October 2021, you must report and pay CGT within 30 days.

If you have other gains to report in the tax year after you sold or disposed of an asset you should use a Self Assessment tax return.

If you’re eligible, you may be able to use the ‘real time’ Capital Gains Tax service to report by 31 December in the tax year after the sale

Do not wait until the next tax year to report gains on UK residential property sold since 6 April 2020. You may have to pay interest and a penalty if you do.

Expert tax advice from Capital Gains Tax Accountants

Here at dns accountants we offer specialist help on all areas of Capital Gains Tax advice. We are qualified tax advisors and accountants. Our services include areas such as:

Reporting and paying Capital Gains Tax
  • Your Capital Gains Tax liability.
  • Capital Gains Tax bills.
  • Capital Gains Tax rates.
  • Capital Gains Tax allowance.
  • How to offset Capital Gains Tax.
  • Self assessment tax return.
  • Potential tax reliefs.
  • Tax planning.

We offer a free initial consultation, so why not call our team on 03300 886 686, or email on enquiry@dnsaccountants.co.uk.

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Answers to capital gains tax most frequently asked questions

You need to collect records to work out your gains and fill in your tax return. You must keep them for at least a year after the Self Assessment deadline.

You’ll need to keep records for longer if you sent your tax return late or HM Revenue and Customs (HMRC) have started a check into your return.

Businesses must keep records for 5 years after the deadline.

Keep receipts, bills and invoices that show the date and the amount:

  • you paid for an asset
  • of any additional costs like fees for professional advice, Stamp Duty, improvement costs, or to establish the market value
  • you received for the asset - including things like payments you get later in instalments, or compensation if the asset was damaged

Also keep any contracts for buying and selling the asset (for example from solicitors or stockbrokers) and copies of any valuations.

There are some ways that you can reduce your Capital Gains Tax bill, including:

Keeping accurate records of costs and deducting them

Keep records of all costs associated with the purchase and sale of your property, including any improvements you’ve made. These can be deducted from your gain to lower your capital gains tax liability.

Offset your losses from other assets

If you sell any other assets during the tax year and make a loss, you can offset this against your total capital gains tax bill if you also sell a property and make a gain.

Make use of the allowance of your spouse

If you’re selling a property you own jointly with a spouse, you can use both of your personal capital gains tax allowances – giving you a potential total deduction of £12,000. If you’re the sole owner, you could consider sharing ownership with your spouse to make use of this higher allowance.

Timing your sale

If you’ve made capital gains from other assets and used up your allowance, consider delaying your property sale until the next tax year so you have your full allowance to use.

In the autumn 2022 budget the government decided to adjust the CGT allowance down meaning more people will qualify for capital gains tax.

The CGT allowance in the 22/23 tax year was set at £12,300 and this was reduced in the 23/24 tax year to £6,000, with a further reduction in 24/25 to £3,000.

The actual capital gains tax rates haven’t been altered and will remain the same during the 2023/2024 tax year. You still only pay CGT on the gain made on the asset sold or disposed of and you don’t have to pay capital gains tax if your income is below the tax free personal allowance in that tax year.

People often assume that giving an asset to another person will be tax-free. Unfortunately, CGT is normally due even where there is a gift.

When you transfer a property to someone else, you are still classed as disposing of it (i.e. you no longer own the asset). This means you need to calculate whether you have made a capital gain or loss on that disposal. You do this by deducting the CGT ‘base cost’ and any transactional costs from the ‘proceeds’ from the disposal.

You do not pay Capital Gains Tax on assets you give or sell to your husband, wife or civil partner, unless:

In a ‘no gain no loss’ transaction, your ‘proceeds’ are deemed to be such that there is neither a gain nor a loss. This is regardless of the amount actually paid or received in return (if anything).

The rules around transfer of property are complex, so you should seek professional advice from a qualified tax advisor, such as dns accountants.

There are, however, some assets which are totally exempt from CGT. This means there is no tax to pay on the sale of the asset (but also that no capital losses can be claimed if the asset has gone down in value).

All assets with a useful life of less than 50 years are exempt from tax. These assets tend to have moving or mechanised parts which are the source of their ‘wasting’ definition. Examples include:

  • cars
  • motorbikes
  • boats
  • yachts
  • racehorses
  • greyhounds
  • clocks
  • shotguns

Prize winnings, such as lottery winnings, sweepstakes, prize bonds or winnings from gambling sites, are exempt from CGT.

For property, capital gains tax is set at 28% for higher rate taxpayers and 18% for basic rate taxpayers – this is the rate at which you will be taxed on the sale profits of your second home.

How you calculate gains will depend on the asset and your personal circumstances, for example other gains in the tax year, if you're a higher rate or basic rate taxpayer etc.

To calculate a gain on a property you will need to work out the difference between what you paid for your property and the amount you got when you sold (or ‘disposed of’) it. You can then deduct costs of buying, selling or improving your property from your gain. These include:

  • estate agents’ and solicitors’ fees
  • costs of improvement work for example for an extension (normal maintenance costs, such as decorating, do not count)

In some situations you should use the market value of the property when working out your gain. Do this if:

You may get tax relief if the property was:

To calculate the gains or losses on a stock investment, one must first know the cost basis, which is the purchase price initially paid for the stock. Investors who neglected to record this information may find it on the order execution confirmation form or the brokerage account statement from the date of the purchase

HMRC can find out about sales of property from land registry records, advertising, changes in reporting of rental income, stamp duty land tax (SDLT) returns, capital gains tax (CGT) returns, bank transfers and other ways.

How do I avoid capital gains tax?

Capital gains tax can be avoided by keeping your capital gains under the tax allowance threshold for the year. Capital gains tax on property is charged by the HMRC only when it is above the tax-free threshold. You can also hold off selling your property for about a year after you purchase it, and you will get a lower rate of tax on it. Any of the best capital gains tax accountants can help you navigate this process.

What is the capital gains tax allowance?

The tax allowance for capital gains for the current year of 2021- 2022 is £12,300. This has not been increased or decreased from the previous year. Basically, when your amount of profit has crossed this amount, you are only liable to pay your capital gains tax then. Hence, your CGT bill only starts to add up when you go over and above the capital gains tax allowance. A CGT accountant can help you calculate the total amount. After you have figured out your taxable income that was earned from your salary, pension or other types of income. Reduce the total amount of capital gains from your tax-free threshold amount.

How do I calculate capital gains on the sale of a property?

Capital gains can be calculated by adding up the totals of all sales of your capital assets. A CGT accountant can give you a list of all the contents under 'capital' gain. Your property could have been inherited from someone. In this case, you will also need to pay capital gains tax on inherited property. Capital gains tax on inherited property is only paid when you sell your inherited property. This is different from inheritance tax.

Do you pay capital gains if you reinvest?

When you reinvest your capital gain into another purchase, you get an exemption - this gain can be rolled into replacement assets. At the point when you reinvest these capital gains, add the reinvested amounts on a cost basis to your mutual funds. You will tend to pay extra taxes, on the off chance that you disregard and are unable to do this. Following reinvested capital gain on mutual can be dreary.

When your stocks or mutual funds are in a retirement account, capital gains tax cannot be charged. These gains can hence be reinvested without paying additional tax.

In 2023-24 you can make tax-free capital gains of up to £6,000. From 2024-25, the allowance is due to be cut further down to just £3,000 tax-free.

Couples who jointly own assets can combine their allowance, allowing a joint gain of £12,000 without paying any tax.

Unused CGT allowances cannot be carried over into the next year. So if you don't use it, you'll lose it!

If you are a self-employed sole trader or in a business partnership you may pay CGT. Limited companies do not pay CGT, instead they pay Corporation Tax.

Business assets you may need to pay tax on include:

  • land and buildings
  • fixtures and fittings
  • plant and machinery, for example a digger
  • shares
  • registered trademarks
  • Goodwill (your business’s reputation)

Sole traders and business partners may qualify for Business Asset Disposal Relief (BADR) when they sell or gift all or part of their business. This can also apply to personal company owners providing you are an employee/office holder and have at least 5% of shares and voting rights.

This means you will pay a reduced rate of 10% on any gains. The qualifying criteria for BADR is complex and must consider your personal circumstances, so seek advice from a tax expert, such as dns accountants.

You can claim a total of £1 million in business asset disposal relief over your lifetime. You may be able to claim more if you sold your assets before 11 March 2020.

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