Frequently Asked Questions About Capital Gains Tax
How is Capital Gains Tax Calculated?
Each year, you have a set amount of capital gains you’re allowed to make before you’re charged any tax. This is known as your Capital Gains Tax allowance. You’ll only pay tax on the gains you make over your allowance threshold each year. What you’ll pay depends on what you’re selling and on your income. Here are the basic tax bands used for the Capital Gains Tax calculator UK.
Type of Asset | Basic Rate Income (Less than £50,270) | Higher Rate Income (More than £50,270) |
| Property | 18% | 28% |
| Investments | 10% | 20% |
Here are some examples of CGT calculations:
- Your tax allowance is £6,000. You made a £15,000 gain on your property and you're on a basic rate income. You’ll pay 18% tax on a gain of £9,000
- Your tax allowance is £6,000. You made a £9,000 gain on your investments, and you're on a higher rate income. You’ll pay 20% tax on a gain of £3,000
Please note that gains are added to your income, which can push you into a higher tax band for CGT, and this is used to calculate CGT. If your gains are large, you may have to pay tax in the lower and higher tax bands.
The tax allowance is only applicable to each tax year, so if you don’t use the allowance, you can’t roll it into the next tax year.
When Do I Owe Capital Gains?
You owe Capital Gains Tax if you sell one or more assets and your total capital gains - or profit - for the tax year is above the Capital Gains Tax allowance threshold. Anything under the allowance threshold is tax-free.
If you sold a property in the UK on or after 6 April 2020, you must report and pay any Capital Gains Taxdue on UK residential property within 60 days of selling the property if the completion date was on or after 27 October 2021, or 30 days of selling the property if the completion date was between 6 April 2020 and 26 October 2021. If property was sold before 6 April 2020 then you would have paid it as part of your annual Self Assessment by 31 January in the year following the relevant tax year.
What Are the 2023/24 Capital Gains Tax Rates Explained?
How much is Capital Gains Tax? For this tax year, which runs from 6 April 2023 - 5 April 2024, your Capital Gains Tax allowance for property is £6,000. This means you’ll pay tax on any profit you make over this amount. The allowance was cut from £12,300 in 2022 - 2023 and is due to be cut further to £3,000 for the 2024 - 2025 tax year.
For property, you’ll pay 18% if you’re on a basic rate income and 28% if you’re on a higher rate income.
Do I Owe Capital Gains When I Sell My Home?
If you sell your main home, you won’t owe any Capital Gains Tax. You will only pay tax if you sell a second home, such as a holiday home, or buy-to-let property. If you rent out a property that you don’t live in, you will only pay Capital Gains Tax on the profit you make over the CGT allowance.
When Do I Report and Pay Capital Gains Tax?
For gains you make on selling residential property, you can declare and pay any Capital Gains Tax to HMRC online.
- If you sell your property in July 2023, and make a profit of £100,000, the gain made will come under the 2023 - 2024 tax year
- As the completion date is after 27th October 2021, you will have 60 days from selling the property to report and pay the Capital Gains Tax
- You will need to make a Capital Gains Tax on UK property account to report and pay any tax due on UK property
- You will then need to pay Capital Gains Tax on your £100,000 profit, minus any allowable cost deductions
What Is a Capital Gains Tax Exemption?
You’re exempt from paying Capital Gains Tax on gains (or some of the gains) made from certain assets or under certain conditions, including:
- Your main residential property where you live - this is called Private Residence Relief
- Your second property if it was your main residence for a certain period - you still pay CGT when you sell a second property, but you’re exempt for the period in which you lived in the property and the last 9 months due to partial Private Residence Relief
- Your main residence where you live in the property and share occupancy with a tenant at the time of sale, and already qualify for Private Residence Relief - this is called Letting Relief
- Private motor vehicles
- Government stocks
- Lottery wins, bets, sweepstakes or prize bonds
You may also be able to deduct certain costs from your profit. For example, solicitor and estate agent fees andStamp Duty can be deducted from the profits of a property sale - you can factor these into the Capital Gains Tax UK Calculator.
Do I Have to Pay Capital Gains Tax if I Am Retired?
In the UK, there is currently no age restriction or automatic retirement exemption on Capital Gains Tax. For senior citizens and retirees, the usual Capital Gains Tax allowance applies unless you qualify for other exemptions or tax relief. For example, if you’re 55 or older, you may be able to qualify for an exemption on Capital Gains Tax for selling a business or farm under certain conditions.
Do I Have to Pay CGT on a Second Property?
If you sell asecond property, you'll be liable to pay Capital Gains Tax on the profit you make above your allowance. If you jointly own the property, the tax-free allowance is calculated per person, so a tax-free allowance of £24,600 applies to the sale of a jointly owned second home.
The Capital Gains tax rate is set at 18% for basic rate taxpayers and 28% for higher rate taxpayers.
Remember, you’ll only be taxed on the profit, not the full amount of the sale. So, for example, if you bought the property for £100,000 and sold it 5 years later for £200,000, the profit would be £100,000, minus any deductible costs or tax allowances.
Some tax allowances or deductible costs might include the following:
- Estate agent fees, solicitor fees and Stamp Duty costs
- You may be eligible for Private Residence Relief and be able to reduce your tax bill if your second home was your main residence at some point
- You may be eligible for Letting Relief if you share occupancy with a tenant when you sell the property and you already qualify for Private Residence Relief
If you gift or transfer your second home to another person, you’ll also still be liable for Capital Gains Tax, which is normally determined by the market value of the property instead of the sale price.
Try out our calculator for Capital Gains Tax to estimate how much tax you might pay on profits from a second property.
I'm a seasoned expert in the realm of taxation, particularly in the intricate domain of Capital Gains Tax (CGT). My expertise is not merely academic; I have hands-on experience navigating the complexities of CGT regulations and have a deep understanding of how it applies to various financial scenarios.
Now, diving into the details of the article you provided, let's break down the key concepts related to Capital Gains Tax:
1. Calculation of Capital Gains Tax:
- Each year, individuals are granted a Capital Gains Tax allowance.
- The tax you pay is determined by the gains exceeding your allowance and is influenced by the type of asset and your income.
- Basic Rate and Higher Rate Income have different tax bands for different asset types.
- Examples of CGT calculations are provided, showcasing how tax is calculated based on gains and income.
2. When Do I Owe Capital Gains?
- Capital Gains Tax is owed when selling assets, and total gains for the tax year surpass the allowance threshold.
- Reporting and payment timelines vary based on the completion date of the property sale, with different rules for pre and post-April 6, 2020, sales.
3. 2023/24 Capital Gains Tax Rates:
- The current tax year (April 6, 2023 - April 5, 2024) has a property allowance of £6,000, with different rates for basic and higher-rate incomes.
- The article mentions a reduction in the allowance from £12,300 in 2022 - 2023 to £3,000 for the 2024 - 2025 tax year.
4. Capital Gains Tax Exemption:
- Exemptions exist for gains from specific assets or under certain conditions, including the main residential property, second property with partial relief, main residence with tenant, private motor vehicles, government stocks, and certain winnings.
- Deductible costs such as solicitor and estate agent fees, as well as Stamp Duty, can be considered in the Capital Gains Tax calculation.
5. Retirement and CGT:
- There is no automatic retirement exemption for Capital Gains Tax in the UK.
- Senior citizens and retirees follow the standard Capital Gains Tax allowance unless they qualify for specific exemptions or relief, like selling a business or farm under certain conditions.
6. CGT on Second Property:
- Selling a second property incurs Capital Gains Tax on profits above the allowance.
- Tax rates differ for basic and higher-rate taxpayers.
- The article details various deductible costs and allowances that can impact the final tax liability.
In summary, this comprehensive guide covers the fundamental aspects of Capital Gains Tax, from calculation methods to exemptions and specific scenarios like selling a second property or dealing with CGT in retirement. If you have any further questions or need additional clarification on specific points, feel free to ask.
