Capital Gains Tax

If you have sold an asset that has increased in value, then Capital Gains Tax will be due. It is the gains that you will pay tax on and not the amount of money received. When Capital Gains Tax is due, it is more than often, when a house has been sold. Although Capital Gains Tax will be due when you have sold a painting, stocks and shares, sale of a business etc…

So, for example, if you have bought a house for £120,000 and sold it for £190,000 then Capital Gains Tax will be due on £70,000. You do not pay any Capital Gains Tax if you have sold a house that is your main home and residence. You also do not have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.

Your tax-free allowance also known as the Annual Exempt Amount for Capital Gains for this current tax year (2020/2021) is £12,300.

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

• You separated and did not live together at all in that tax year
• You gave them goods for their business to sell on

If they decide to sell later, they may have to pay tax on any gain. Their gain will be calculated on the difference in value between when you first owned the asset and when they sold it. They should keep a record of what you paid for the asset. 

The rules have changed from April 2020.

 If you sell a house, you must report and pay any tax due within 30 days of selling. Before you had until your next self-assessment to report and pay. If you have not reported and paid any gains within 30 days of selling, HMRC can charge penalties and even interest on any late payments.

You will have to register and you’ll need a Government Gateway user ID and password to set your account up or sign in. If you do not have a user ID, you can create one the first time you sign in.

You will need the following information at the ready,

• Property address and postcode
• Date you got the property
• Date you exchanged contracts when you were selling or disposing of the property
• Date you stopped being the property’s owner (completion date)
• Value of the property when you got it
• Value of the property when you sold or disposed of it
• Costs of buying, selling or making improvements to the property

Once you have an account you can sign in at any time to report Capital Gains Tax on UK property or see any returns you have already sent.

Once you have sent your return to HMRC, you will be notified on how much you owe in Capital Gains Tax, how to pay and when to pay by.

How much do I pay?

Rates on Capital Gains varies. If you are a higher rate taxpayer you will pay,

• 28% on your gains from residential property
• 20% on your gains from other chargeable assets

If you are a basic rate taxpayer, the rate depends on the size of the gain and your taxable income.

1. Work out your taxable income
2. Work out your taxable gains
3. Deduct your annual exempt amount from your taxable gains
4. Add this to your taxable income
5. Work out which tax rate you pay

If the amount falls within the basic income tax band (£12,501 to £50,000 for 2020/2021) you will pay,

Example