Capital Gains Tax: How to work out if you need to pay CGT – are you exempt?

Martin Lewis outlines ideas to alleviate impacts of tax hikes

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People need to complete a self-assessment tax return to HMRC, and inform them if their taxable gains are more than four times their allowance. A self-assessment (or SA100 form) is used to calculate the amount of income tax, and National Insurance payable – or any income that isn’t taxed at source.

The tax year runs from April 6 to April 5 the following year.

To work out what people need to pay, the Government website has issued guidance.

People need to pay Capital Gains Tax when they sell an asset if their total taxable gains are above their annual CGT allowance.

Work out your total taxable gains

  • Work out the gain for each asset (or your share of an asset if it’s jointly owned). Do this for the personal possessions, shares, property or business assets you’ve disposed of in the tax year.
  • Add together the gains from each asset.
  • Deduct any allowable losses

People need to notify HMRC if they sell their property or land.

This applies even if their gain is below the tax-free allowance or they made a loss.

Non-residents do not pay tax on other capital gains.

Some assets are exempt from Capital Gains Tax such as:

  • Private motor cars, including vintage cars
  • Gifts to UK registered charities
  • Prizes and betting winnings Cash
  • Assets held in ISAs
  • Foreign currency held for one’s own use

CGT is typically applicable to shares, investment funds, second properties,
inherited properties, the sale of a business, valuables including art, jewellery and antiques, as well as assets that are transferred at below their market value.

The first £12,300 of capital gains each year is exempt from tax.

CGT is charged at 10 percent for basic rate taxpayers.

It is 20 percent for higher and additional rate taxpayers, or 18 percent and 28 percent respectively on residential properties.

In contrast, income tax is charged at a basic rate of 20 percent, rising to 40 percent and 45 percent for higher and additional taxpayers.

People pay CGT on a gain when they sell or dispose of most personal possessions worth £6,000 or more (apart from their car), property that’s not their main home or business assets.

These are known as chargeable assets.

Each tax year, most individuals who are resident in the UK are allowed to make a certain amount of capital gains before they have to pay CGT.

This is because they are entitled to an annual tax-free allowance, called the annual exempt amount (AEA). It is also sometimes referred to as the annual exemption.

For 2021/22 people may make gains of £12,300 tax free.

At the 2021 Budget, the Government announced that the AEA will be frozen at this level for tax years up to and including 2025/26.

Any unused AEA cannot be carried forward or back. Each spouse or civil partner gets their own AEA.

The rate of CGT which people pay depends partly on what type of chargeable asset they have disposed of and partly on the tax band into which the gain falls when it is added to their taxable income.

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