In this article we discuss:
- What is Capital Gains Tax in the UK?’
- Does HMRC Automatically Sort Out Any Capital Gains Tax payable for Me?
- When Do I Need to Report and Pay Capital Gains By?
- Do I Need to Report & Pay Capital Gains Tax on the Sale of Residential Property?
- Do I Owe Capital Gains Tax on A Property I Have Inherited?
- How Do I Report My UK Capital Gain on the Sale of Property?
- I Have Made a Chargeable Gain on a Jointly Owned Property – How Does That Work?
- What Information do I Need to Report My Capital Property Gain?
- How Do I Calculate My Property Capital Gain or Loss?
- How Do I Report A Capital Loss?
- Capital Gains Tax Rates
- What is the Capital Gains Tax Free Allowance for Individuals in 2022/23?
- How Do I Pay Capital Gains Tax Due on the Sale of UK Property?
- What Records Do I Need to Keep in Relation to Capital Gains Tax?
- I Have Received A Penalty For Reporting Capital Gains Tax Late – What Can I Do?
- How Can I Plan Ahead to Reduce My Capital Gains Tax Bill?
- Where Can I Find More Information On Capital Gains Tax?
- Still Not Sure If You Owe CGT?
- Further Information
What is Capital Gains Tax in the UK?
If you sell a capital asset, such as shares, business assets, personal possessions, crypto, or or assets including second homes, which haw increased in value during the time that you have owned it, you may have made a Capital Gain, and have to pay CGT.
Under the UK tax rules, HMRC sees capital gains as taxable income which you must pay tax on.
You are taxed on the capital gains made (the original purchase price less the sale price), not the amount of money received.
Does HMRC Automatically Sort Out Any Capital Gains Tax payable for Me?
Capital Gains Tax is not automatically deducted by HMRC, and therefore must be self-reported. If you fail to report any capital gains and pay capital gains tax owed to HMRC you will face penalties, so it is important to get it right.
When Do I Need to Report and Pay Capital Gains By?
For the sale of residential property, taxpayers have 60 days from the date of completion to report and pay any Capital Gains Tax due.
For all other assets you must report by 31st December in the tax year after the sale, and pay by 31st January.
Do I Need to Report & Pay Capital Gains Tax on the Sale of Residential Property?
If you have sold a residential property that isn’t your main home, eg a property that you have received rental income on, and you have made a profit, you may have Capital Gains tax to pay.
You do not need to pay Capital Gains Tax on the sale of your main home.
If your capital gains in the tax year are more than your annual exempt capital gains tax allowance, then you will owe Capital Gains Tax.
The amount of tax you pay depends on your total taxable income.
You will need to report your capital gains and pay capital gains tax to HMRC within 60 days of the property completion date. The Capital Gains Tax allowance is separate to your annual tax free personal allowance for income tax.
In addition, if you are under self-assessment, you must also include the figures on your self-assessment tax return at the end of the tax year. Don’t forget to include the amount of CGT you have paid on account already. You can find further guidance on including your capital gains and losses on your personal tax return, on the HMRC website.
If there is no Capital Gains Tax to pay, either because you have made a loss, or your capital gain is lower than your annual capital gains tax allowance, then no report to HMRC will be required. If you are a non-resident in the UK, this does not apply, and you must always report disposals of UK property within 60 days of the completion date.
Do I Owe Capital Gains Tax on A Property I Have Inherited?
If you are the beneficiary of an estate, you only need to worry about Capital Gains Tax at a later date if you sell the property in the future and it has risen in value.
How much tax you pay depends on the gain made. The gain will be calculated on the sale price less the market value when you inherited the asset, less any other allowable costs.
How Do I Report My UK Capital Gain on the Sale of Property?
If you have a Capital Gain to report within 60 days of your property sale, you will need to do this using HMRC’s digital service.
You must create a Capital Gains Tax on UK Property account, using your Government Gateway User ID on the HMRC online service. If you don’t have a Government Gateway ID, you can create one when you first try to sign in.
If you would prefer to use the help of an agent to report your gain, you will need to provide them with your CGT reference which you will receive when you create a Capital Gains Tax on UK Property account. This can be obtained within minutes.
I Have Made a Chargeable Gain on a Jointly Owned Property – How Does That Work?
If the property is jointly owned, you must report your own capital gains or loss.
For example if the property is owned 50/50, you would report 50% of the figures on your declaration.
A separate declaration would be needed for the other owner.
What Information do I Need to Report My Capital Property Gain?
You will need to provide the below information when reporting your Capital Gain, and to pay CGT:
Address of property sold
Date of sale
Date of purchase
Original cost of purchase
Improvement costs (certain costs not already claimed as repairs)
Stamp duty land tax amount paid on purchase
Solicitor fees amounts paid on purchase and sale
Estate agent fees amount paid on purchase and sale
Is the property solely or jointly owned
Dates for any period of time that the house was your main residence (Capital Gains Tax relief is available for this)
Any capital gains or allowable losses carried forward forward from other assets
Any other capital gains in the current tax year from 6th April
Your total taxable income from all income sources in current tax year from 6th April (eg, gross salary, dividends, rental income, etc)
How Do I Calculate My Property Capital Gain or Loss?
To calculate your Capital Gain you should take the disposal proceeds and deduct the original cost of the asset, any improvement costs, stamp duty, solicitor fees, estate agent fees, and capital losses brought forward, and any reliefs such as principal private residence relief.
You should then deduct the annual capital gains allowance, to arrive at your Capital Gain.
You can use HMRC’s calculator to look at how much Capital Gains Tax you may pay.
How Do I Report A Capital Loss?
You can report your loss to HMRC on your annual tax return if you are registered for self-assessment.
If you aren’t registered for self-assessment, you can write to HMRC instead.
You don’t have to report a loss straight away. You have up to 4 years from the end of the tax year that you disposed of the asset.
Capital Gains Tax Rates
Capital Gains Tax Rates For Residential Property
The rate of Capital Gains Tax depend on your income tax band in the tax year the Capital Gain falls. Therefore your total income must be taken into consideration when calculating Capital Gains Tax. The same rules apply if you live in Scotland and are a Scottish taxpayer, or live in Wales and are a Welsh taxpayer.
The tax rate of Capital Gains on the sale of UK property are as follows:
18% for a basic rate tax taxpayer on the basic income tax band
28% for a higher rate taxpayer on the higher income tax band
Capital Gains Tax Rates For the Sale of Other Chargeable Assets, ie, Shares, Artwork, Jewellery, Cryptocurrency
The basic rate of capital gains tax for the sale of other chargeable assets (other assets excluding residential property) are as follows:
10% for a basic rate taxpayer on the basic income tax band
20% for a higher rate taxpayer on the higher income tax band
Capital Gains Tax Rates For Business Assets Disposals – Entrepreneurs Relief
When you sell your business, or a percentage of it, you may be entitled to entrepreneurs relief – now known as business assets disposal relief.
To qualify for entrepreneurs relief, you must be a sole trader, and have owned your business for two years. The rate of CGT when theses 2 criteria are satisfied is 10%.
What is the Capital Gains Tax Free Allowance for Individuals in 2022/23?
The capital gains tax allowance is the maximum amount of profit you can earn from your capital gains without having to pay tax.
When calculating your Capital Gain, the good news is that there is a Capital Gains Tax allowance. Up to March 2023, the CGT allowance is £12,300. This means that your capital gains up to £12,300 are tax free. If you make a profit below £12,300 in a single tax year, you will be exempt from paying CGT. You won’t have to pay tax on the first £12,300 of gains you make. Any gain over this allowance is taxed.
From April 2023 to March 2024, the annual Capital Gains Tax allowance is £6000 per individual.
From April 2024 onwards the annual Capital Gains allowance is £3000 per individual.
If the asset is jointly owned, you will each get your annual exempt allowance against the gain. This is separate to your income tax annual allowance.
How Do I Pay Capital Gains Tax Due on the Sale of UK Property?
Once you know how much gains tax you must pay, paying Capital Gains Tax is simple.
When you have submitted your Capital Gains Tax declaration using the government’s real-time capital gains tax service, HMRC will provide you with a reference to use when you pay CGT. This is different to your personal UTR number.
What Records Do I Need to Keep in Relation to Capital Gains Tax?
You should keep all records that you have collated to calculate and report your capital gain or loss, as there are certain costs that can reduce your gain and in turn the tax payable.
These records should be kept for at least a year after the self-assessment deadline. You must keep them for longer if you sent your tax return in late or HMRC are checking your return.
If you are a business you should keep your records for 5 years after the deadline.
Records you should keep are:
bills and invoices with dates and amounts for any improvement costs
solicitor and estate agent bills
stamp duty costs
If you find you are unable to locate records and can’t obtain copies, for example if they have been lost, stolen or destroyed, you should try to recreate them. When you report your gain you will need to state if figures are:
estimated – that you want HMRC to accept as final
provisional – that you’ll update later with the actual figures
I Have Received A Penalty For Reporting Capital Gains Tax Late – What Can I Do?
If you had to pay tax but paid this money late, you may receive a penalty.
If you have a reasonable excuse, you can appeal the penalty.
Instructions on how to proceed with an appeal for Capital Gains Tax penalties will be found on your penalty letter from HMRC.
What May Count as A Reasonable Excuse?
A reasonable excuse is something that stopped you meeting a tax obligation that you took reasonable care to meet, for example:
your partner or another close relative died shortly before the tax return or payment deadline
you had an unexpected stay in hospital that prevented you from dealing with your tax affairs
you had a serious or life-threatening illness
your computer or software failed just before or while you were preparing your online return
service issues with HM Revenue and Customs (HMRC) online services
a fire, flood or theft prevented you from completing your tax return
postal delays that you could not have predicted
delays related to a disability or mental illness you have
you were unaware of or misunderstood your legal obligation
you relied on someone else to send your return, and they did not
How Can I Plan Ahead to Reduce My Capital Gains Tax Bill?
There are a few ways that you can plan ahead to get CGT relief on your overall Capital Gains Tax bill when selling assets. We have listed below the main considerations:
Spouse’s or Civil Partner Allowance
Consider having the property in joint names – transfer assets. If you transfer assets so that yourself and your spouse or civil partner both own the property, you will get double the tax free allowance (2x £12,300), reducing the overall gain.
Basic rate taxpayers pay lower CGT at 10/18% for, so if you’re a higher rate taxpayer but your spouse is basic rate due to lower total taxable income, consider transferring all or part of the property into their name to reduce the overall tax payable. Higher rate taxpayers pay 20/28% CGT.
Timing of Sale
If you have used up your CGT allowance already in the current tax year, consider delaying the sale of assets until the new tax year begins on 6th April, spreading your disposals over the tax years.
You should make sure you report any Capital Losses on assets to HMRC, as you can use these to deduct against future gains. You can do this on your personal tax return. If you’re not Self-Assessment registered, you can write to HMRC to inform them of any capital losses in the tax year. You can then deduct unused losses from previous tax years to reduce your gain. If your loss exceeds your gain you won’t have to pay tax. You can carry forward any remaining losses to a future tax year.
If you lived in the residential property as your main home for any amount of time, you will be able to claim Principal Private Residence Relief for this period of time, so make sure you keep a note of the to and from dates. Married couples and civil partners can only count one property as their main home at any one time.
Where Can I Find More Information on Capital Gains Tax?
You can find further information on Capital Gains Tax and how to pay tax on gains made on the disposal of assets can be found on the HMRC website. If unsure you should seek tax help from a tax expert. Simple Taxes can calculate and file your Capital Gains Tax declaration on your behalf.
Example 1 of Capital Gains on the Sale of Residential property:
Anne had some money saved, and has bought a property to rent for £250,000, and sold later for £350,000.
There is a realised gain of £100,000.
Less the tax free allowance of £12,300.
Less any improvement costs, stamp duty land tax, solicitor fees, estate agent fees, valuation fees.
The remaining gain will be taxed at 18% if Anne is a basic rate taxpayer, or 28% if Anne is a higher rate taxpayer.
Example 2 of Capital Gains on the Sale of Residential property:
Jim and Sandra took some of their savings money and bought a property to rent out, for £200,000, which they later sold for £250.000.
There is a realised gain of £50,000.
As the property is jointly owned, the tax free allowance is doubled to £26,600.
Less any improvement costs, stamp duty land tax, solicitor fees, estate agent fees, valuation fees.
The remaining gain will be split 50/50 and taxed at 18% or 28%, depending on if Jim and Sandra are basic rate taxpayers or higher rate taxpayers.
Still not sure if you owe CGT?
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For further information on Capital Gains Tax please see the HMRC guidance here.
If you need help with Capital Gains, get in touch with us today at www.simpletaxes.co.uk .
The information contained in this blog is for general information purposes only, and not for accounting and tax advice. You should speak to a qualified professional about your specific circumstances before acting upon any of the information in this blog.
Date Published: January 2023