Capital Gains Tax: What You Pay It On, Rates, and Allowances

What is Capital Gains Tax?

Capital Gains Tax is the tax you pay on the profits of an asset when you come to sell it. The tax is calculated based on the profit made not the new overall value it was sold for. For example, if an asset was bought at £5,000, but sold for £8,000, the tax would be on the £3,000 difference. It is important to know CGT is not automatically deducted like income tax, you must report it manually. 

Capital Gains Tax-Free Allowance

You only pay CGT if your overall gains are above £3,000 (£1,500 for trusts). You can also reduce the tax paid by reporting any losses made or claiming reliefs. When you report a loss, the amount is taken from the profit you made in the same tax year. (the 6th of April to the 5th of April of the following year).

When To Pay Capital Gains Tax 

There is a time frame where CGT must be reported and paid. This is done by completing a self-assessment tax return report. If you sell a residential property that has a completion date of 27th of October 2021 or later, the time frame is 60 days. However, if the property was completed between the 6th of April 2020 and the 26th of October 2021, the timeframe is 30 days. 

The tax rate on residential property is different than the rate on other assets. You should not wait to pay any CGT in the next tax year as this can lead to paying interest or being given a penalty.

Basic Rate Taxpayer

If you are a basic rate taxpayer, the CGT will be calculated by using the amount of profit, taxable income, and where your gain is from. 

To work out a taxable income you must calculate your income minus your personal allowance and any other tax reliefs. 

Then work out the taxable gains (take away tax-free allowance) and then add this to your taxable income. 

If the total amount is within the basic income tax band (£37,700) you will be required to pay 18% on gains made from the 30th of October. For gains made between the 6th of April 2024 and the 29th of October 2024, you will be taxed 10%. (or 18% on residential property and carried interest). Any amount above the basic income tax band will be taxed at the same rate as the higher rate.