A capital gain tax is applicable whenever you make profits from selling or disposing of assets. So, whenever you file a capital gains tax return UK, you have to understand its functionality.
That’s why, we brought you this guide to explain in simple terms how to stay compliant with HMRC guidelines.
What is Capital Gains Tax?
Now, capital gains tax (CGT) is the taxation gained after disposing of an asset. It refers to selling, gifting, swapping or receiving compensation for it. CGT is usually applicable for individuals, sole traders and partnerships. However, limited companies do not pay any CGT. Rather, they pay corporation tax on chargeable profits only.
Besides, you may be required to complete a CGT self-assessment UK return after making taxable profits.
Assets Eligible For Capital Gains Tax?
So, some of the common assets eligible for CGT are:
- Property
- Shares and investments
- Crypto assets
- Business assets
- Collectables such as art or NFTs
Hence, before filing a capital gains tax return uk process check even if your asset qualifies for CGT.
Assets exempted from CGT?
Now, there are certain types of assets which are excluded for CGT:
- Your primary home (If it meets the requirements for Principal Private Residence)
- Cars (as long as not involved for business purposes)
- Personal items under a lifetime of 50 years only.
- Gifts made to a spouse, civil partner or for charity.
- Exceptional investments like ISAs and gilts
So, these are the exemptions as listed under HMRC CGT rules UK. It clearly defines what is taxable and what is not.
Do I pay CGT when selling a property?
Eventually, you are not required to pay the taxes for your main residence. However, you may have to pay property capital gains tax UK if:
- You are renting out the property
- It is your secondary home
- It’s a buy-to-let listed property
- You are using it as a profit resource.
Hence, making any profit above your annual allowance will be taxable. If you're a landlord managing rental properties, you'll also need to understand your ongoing tax obligations.
Check out our detailed guide: Rental Income Tax UK – A Checklist for Landlords.
CGT for Business Owners
Now businesses and partnerships structured as sole traders may have to pay CGT while disposing of business assets. Whereas, limited companies do not have to pay any CGT. As they calculate their profits and pay corporation tax instead.
However, reinvesting the earnings into another business asset like a Business Asset Rollover Relief will reduce or delay CGT billing.
Working out your profits
Most importantly, CGT applies only to the profit and not the entire sales price.
To simply put it:
- Gain = Sale proceeds – (Purchase cost + Improvement costs + Selling costs)
Now, improvement costs can go above normal repairs and selling costs may include:
- Advertising Fees
- Professional Subscriptions
- Auction Charges
So. you are only paying tax on the remaining profit after the deductions. Need help calculating your capital gains or filing your CGT return? TaxSimba's experienced accountants can handle all the complex calculations and ensure accurate HMRC reporting for just £120.
For detailed information on current CGT rates, annual exemptions, and reporting deadlines, refer to HMRC's Capital Gains Tax guidance.
Conclusion
Summing up, managing CGTs is quite difficult especially if you are new or lack major experience. Also, a small error in your calculations or reporting will lead to penalties, interest, or HMRC audits.
However, having expert support and guidance make significant differences. Therefore, Let TaxSimba assist you with CGT reporting and Self Assessment processes.