Capital Gains Tax

The gain made when you dispose of chargeable assets such as shares, property, and business assets. CGT does not have to be paid on all assets as some assets are tax-free and if all your capital gains in a year fall under the tax-free allowance of £12,300. The Capital Gains tax-free allowance will be reduced to £6,000 from April 2023 with a further reduction to £3,000 from April 2024. Gifts to your husband, wife, civil partner, do not usually require CGT tax to be paid.

The rate of Capital Gains Tax also depends on the band of income tax you pay. Those with a basic rate of income tax will pay 10% on gains while those who are in the higher income tax rate band pay 20% on gains from chargeable assets.

While you do not normally pay tax when you sell your main home, the sale of second homes etc are subject to CGT and tax on residential properties differ from other assets. Those in the basic income tax rate band pay 18% on residential properties with those in the higher band paying 28%. If you are eligible to pay Capital Gains Tax on the sale of a property you are required to report and pay it within 60 days of the sale.

If you are a self-employed sole trader or in a business partnership you may be subject to Capital Gains Tax on profit made from selling all or part of a business asset. Business assets that you may need to pay CGT on include buildings and land, plant and machinery, fixtures and fittings, registered trademarks, shares and goodwill.

In certain circumstances when selling business assets, you may pay less Capital Gains Tax. When selling qualifying assets, Business Asset Disposal Relief, which was formerly known as Entrepreneurs’ Relief, may be applicable and gains taxed at 10% subject to a current lifetime limit of £1m.  It is worth seeking advice in advance of any proposed sale to establish if any tax planning can be achieved to ensure BADR is available.

There are other reliefs available for CGT such as:

• Business Asset Rollover Relief – you can delay paying CGT if you sell business assets and use all or part of the gains to buy new assets. Tax is not payable until you sell the new asset, at which point you may need to pay tax on the original assets’ gain.
• Gift Hold-Over Relief – when you give away certain assets or sell them for less than they are worth you may be eligible to claim Gift Hold-Over Relief. When the person who has been given the asset sells it, only then is Capital Gains Tax will need to be paid if it is due.
• Enterprise Investment Scheme – offers tax reliefs to individual investors who buy new shares in qualifying companies.