What You Need to Know About Capital Gains Tax
Capital Gains Tax (CGT) is something many people encounter during significant financial transactions, yet it's often misunderstood. Whether you're selling property, shares, or valuable assets, understanding CGT can help you plan effectively and potentially save money.
This guide breaks down the essentials of Capital Gains Tax, including when it applies, how it's calculated, and strategies for managing your liability.
What Is Capital Gains Tax?
Capital Gains Tax is a tax on the profit you make when you sell or dispose of an asset that has increased in value. Importantly, it's the gain that's taxed, not the total amount of money you receive.
CGT applies to various assets, such as:
- Property: Second homes, buy-to-let properties, or commercial premises (your main home is usually exempt).
- Shares and Investments: If they're not held in an ISA or pension.
- Valuable Items: Artwork, antiques, jewellery, or other assets worth over £6,000.
When Does Capital Gains Tax Apply?
You may need to pay CGT if:
- You sell an asset for more than you paid for it.
- You gift an asset to someone other than your spouse or civil partner.
- You exchange an asset or receive compensation, such as an insurance payout.
It's important to note that certain assets, like your main residence or personal belongings under £6,000, are typically exempt.
Capital Gains Tax Rates for 2023/24
The amount of CGT you pay depends on your total taxable income and the type of asset you're selling. For individuals in the 2023/24 tax year, the rates are:
- 10% or 20% for most assets: If you're a basic or higher/additional rate taxpayer.
- 18% or 28% for residential property gains: Higher rates apply to property not covered by the main residence exemption.
Every individual has an annual exempt amount of £6,000 for 2023/24 (down from £12,300 in the previous year), meaning gains up to this threshold are tax-free.
Reducing Your Capital Gains Tax Liability
Planning ahead can help you minimise the CGT you pay. Consider these strategies:
- Utilise Your Annual Exemption: Spread asset sales over multiple tax years to maximise your tax-free allowance.
- Offset Losses: Deduct capital losses from gains to reduce your taxable amount.
- Transfer Assets to a Spouse: Transfers between spouses or civil partners are exempt, allowing you to share the tax burden.
- Invest Tax-Efficiently: Use ISAs and pensions to shelter investments from CGT.
How AWS Accountants Can Help
Navigating Capital Gains Tax can be complex, but with the right advice, it doesn't have to be stressful. At AWS Accountants, we specialise in helping individuals and businesses understand their tax obligations and identify opportunities to reduce liabilities.
Whether you need help calculating your CGT, reporting it to HMRC, or planning future transactions, our expert team is here to guide you.
Contact us today to learn more and ensure your financial decisions align with your goals.