Capital gains tax is a tax imposed on the profit made from selling or disposing of certain assets.

In the UK, capital gains tax is applicable to individuals, trustees, and personal representatives (in the case of an estate) who realise a capital gain from the disposal of chargeable assets. Chargeable assets include property (usually your main residence is exempt, unless you have let it out, used it for business or it is very large), investments such as shares or securities, personal possessions worth £6,000 or more (excluding cars), and business assets.

Here are some key points to understand about UK capital gains tax:

1. Annual Exempt Amount: Each individual is entitled to an annual exempt amount, which is the threshold up to which no capital gains tax is payable. For 2023/2024, the annual exempt amount is £6,000 (reducing to £3,000 for 2024/25 onwards) for individuals and personal representatives and £3,000 (reducing to £1,500 for 2024/25 onwards) for trustees.
2. Disposing Of An Asset: Disposing of an asset does not just apply to assets that are sold, giving an asset away as a gift, swapping it for something else, or getting compensation for it, for example an insurance pay out if it is lost or destroyed, will all be classed as a disposal. Generally you do not have to pay Capital Gains Tax on assets you give to your spouse or civil partner as long as certain criteria are met, however they may have to pay tax on the gain if they later dispose of the asset.
3. Tax Rates: The tax rates for capital gains depend on the individual’s income tax band. For the tax year 2023/2024, the rates are as follows:

• Basic rate taxpayers: 10% on gains within the basic rate band (18% for residential property) and 20% on gains above the basic rate band (28% for residential property).

• Higher and additional rate taxpayers: 28% on gains from residential property and 20% on gains from other chargeable assets.

3. Capital Gains Allowances and Reliefs: There are various allowances and reliefs available that can help reduce the capital gains tax liability. These include Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief), which provides a reduced tax rate of 10% on qualifying business asset disposals up to a lifetime limit of £1 million (subject to certain conditions), and other reliefs such as the Annual Exempt Amount mentioned earlier.
4. Reporting and Payment: Capital gains tax on assets, other than residential property, is reported and paid through the self-assessment tax system. If an individual has a capital gains tax liability in a tax year, they need to report it on their self-assessment tax return, which is typically due by January 31st following the end of the tax year. The tax liability is then paid at the same time as the individual’s income tax liability. For residential properties sold in the UK with a completion date on or after 27^th October 2021 the gain must be reported and any tax paid within 60 days of completion.
5. Losses and Allowable Costs: It’s important to note that capital losses can be offset against capital gains, reducing the overall tax liability. Additionally, certain costs associated with acquiring, improving, or selling the assets (e.g., legal fees, estate agent fees) may be deductible for capital gains tax purposes.

It is crucial to keep detailed records of all capital asset transactions and seek professional advice to ensure compliance with UK tax laws and optimise your tax position. The rules and regulations surrounding capital gains tax can be complex, and we would advise seeking guidance before assets are disposed of where possible.