A Complete Guide To The Capital Gains Taxes

 Most taxpayers know that income is subject to Income Tax. However, most aren't sure how to deal with a sale of capital assets, such as shares or property. Many taxpayers are left scratching their heads due to recent changes in Capital Gains Tax reporting. However, Accounting Services London are always available to help you in easing these reporting and tax preparation. Here you can find out more about Capital Gains Tax:













What Is Capital Gains Tax?

Simply stated, if you sell an item that you own and the value has increased, you could be subject to tax. Capital Gains Tax (CGT) is this tax. There are many factors that will determine whether you will have to pay UK Capital Gains Tax when selling your asset. These factors are discussed in greater detail below. 

Who Pays Capital Gains Tax? 

You might be curious if CGT is different from Income Tax. Individuals pay income tax (e.g. Income Tax is a tax on income (e.g. salary, self-employment profits, rental income). Capital Gains Tax is for gains that result from the disposal of chargeable assets. Common examples of chargeable assets are shares, property, or land. CGT may be applied to assets that are sold or gifted. 

Capital Gains Tax is generally imposed on UK residents who make worldwide gains. However, overseas chargeable assets such as property or vehicles (e.g. UK CGT is also applicable to the disposal of overseas rental properties. 

Exempt Assets

Some disposals result in a Capital Gains Tax liability. Let's look at some examples to show you what is exempted from CGT. The most common exemption is the disposition of the principal residence. This applies if the property was a taxpayer's primary residence during ownership and has not been used to generate income. 

CGT is not applicable in the following situations: An individual transfers an asset or property to their spouse/civil partner. These transfers are generally considered to be at nil gain or loss. CGT exempt asset dispositions may also be available - HMRC guidance gives a high-level summary. 

How Do You Calculate CGT? 

CGT can be described as simply taking the acquisition price and subtracting the "base cost" from any net proceeds. This calculation can be more complex in practice. For example, if an asset is gifted and capital losses are claimed or if only partial private residence relief applies to a property sale. It is a good idea to consult a professional if you have more complex situations. You can contact capital gains tax accountants London to get help in calculation of CGT with perfection.


After the net gain is calculated, the taxpayer must consider the annual exempt amount (AEA). The AEA, which is a CGT allowance means that Capital Gains Tax will not be payable on gains falling within the AEA. The AEA threshold for individuals in 2021 is currently £12,000. This rate will be frozen by the government until April 2026, according to government confirmation. 

What Is The Percentage Of CGT? 

The percentage of Capital Gains Tax applicable to a disposition depends on the asset and taxpayer status. If the asset is residential property the CGT rate is either 18% (or 28%). The basic rate taxpayers pay 18%, and the additional rate taxpayers pay 28%. Other chargeable assets that are sold are subject to CGT rates of 10% and 20%, depending on the rate band. 

Taxpayers may also be eligible for Capital Gains Tax Reliefs if certain conditions are met. Qualifying assets may be eligible for Business Asset Disposal Relief (formerly Entrepreneurs Relief), which applies a 10% CGT on qualifying gains up until a lifetime allowance equal to £1 million. 

When Should You Pay Capital Gains Tax 

31 January is the deadline for Capital Gains Tax to be paid. This date applies only to disposals that occurred in the same tax year. Capital gains are not included in the POA if the taxpayer pays tax on account. The full amount of CGT must be paid by 31 January. This exception is made when a UK residential property has been sold. These cases should be reported to HMRC and the CGT paid within 30 days. 

Reporting Disposals 

A taxpayer should report to HMRC any chargeable disposal, with limited exceptions. This can be done by filling out a self-assessment return tax return and the Capital Gains Tax Supplemental pages. If this is the first self-assessment tax returns of an individual, the deadline for registration is 5 October after the end the relevant tax year. 

Reporting Property Dispositions 

When disposing of UK residential property, there are additional reporting requirements. UK tax residents should report the disposition of UK residential property (e.g. A UK resident should report the disposal of UK residential property (e.g. a rental property) to HMRC using the Capital Gains Tax account. 30 days after the completion of the sale, the deadline for reporting the disposition and paying the CGT due is met.


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