• Taxation
• ||
• September 18, 2024

Capital Gains Tax (CGT) is imposed on the profit made from the sale of assets, such as property, shares, and collectibles. Usually, the kind of asset and individual’s total income determine the tax rate.

Types of Assets Subject to CGT

• Residential property: Buy-to-let properties, second homes, and primary residences are all considered residential properties.
• Shares and securities: bonds and gilts, as well as listed and unregistered shares.
• Collectibles: Art, antiques, coins, and other valuable items.
• Other assets: Real estate, companies, and specific financial goods.

Tax Rates

The CGT rates for individuals and trustees in the UK are as follows for 2024/25:

Taxpayer	Residential Property Gains	Carried Interest Gains	Other Gains
Individuals	18% & 24%	18% & 28%	10% & 20%
Trustees	24%	N/A	20%
Personal Representatives	24%	28%	20%

Note: There are certain exemptions and reliefs available, such as:

• Annual Exempt Amount: A portion of capital gains is exempt from tax each year.

Tax Year	Annual Exempt Amount for Individuals, Personal Representatives, and Trustees for Disabled People	Annual Exempt Amount for Other Trustees
2024 to 2025	£3,000	£1,500

• Principal Private Residence Relief: Relief for gains on the sale of your main home.

CGT implication on main residence-

Let it out partly or fullyUsed main residence exclusively for business purposesOwn more than one home in the UK.The building including the grounds is more than 5000 square metresBought the home for the intention of sale

• Business Asset Disposal Relief: Reduced CGT rates for qualifying disposals of assets used in a business.

Calculating CGT

To calculate your CGT liability, we need to determine the following:

1. Acquisition cost: The price you paid for the asset.
2. Disposal proceeds: The amount you received from the sale.
3. Costs of disposal: Expenses incurred in selling the asset-
4. Stamp duty
5. Estate agent fees
6. Solicitors fees
7. Renovations cost

The gain is calculated by subtracting the acquisition cost and costs of disposal from the disposal proceeds. This gain is then taxed according to your applicable tax rate.

Example:

If a property is bought for £200,000, sold it for £300,000, and incurred £10,000 in selling costs, the gain would be £90,000. Assuming the tax payer is in the basic rate tax band and can claim their annual exemption(AE), the CGT liability would be £15,120 (18% of £86,000).

It’s important to note that CGT rules can be complex, and it’s advisable to seek professional advice if you have any doubts or questions.

Strategy to Lowering the CGT

With constructive strategies, anyone can potentially reduce capital gain tax liability. Here are some tips-

• Deduct Allowable Cost: claim allowable expenses like buying and selling cost to reduce tax liability
• Joint Ownership: Owning the property jointly with spouse or civil partner doubles the annual allowance.
• Main Residence: Can choose the high value residence as main home to lower the CGT.
• Transfer Ownership: Transfer the residence ownership to spouse if they are in lower tax bracket which will attract lower CGT rate.

CGT of Inherited Property

Although receiving a property as an inheritance may not result in capital gains tax (CGT) right away, it may raise the value of your estate and, in the event that the entire value exceeds the tax threshold, result in inheritance tax.

In the event that you sell an inherited property and do not use it as your primary residence, you may be responsible for capital gains tax on the profit generated from the sale. In the event that the property’s value has significantly increased, this tax may be large.

A tax professional may offer recommendations based on your particular circumstances and local tax rules, so it’s wise to speak with them to understand your precise tax obligations and alternative tax-minimizing techniques.

Part Disposal

Any assets can also be disposed of partly (such as property or shares), in this case, ownership interest is reduced. This is known as part disposal.

Part disposal gain is similar to other Capital gain and to calculate the CGT on a part disposal assets, the gain for this disposal needs to be determined.

Capital Losses

Capital losses will incur when any assets are sold less than their purchase value or their carrying value. This will reduce any other capital gains but there won’t be any effect of other income as result they don’t immediately lower income tax obligation. This means that CGT can be lowered if there is a capital loss.

Capital loss can be utilising following way-

Offsetting future gains: Any future capital gain can be offset with capital loss

Carry-forward: If capital losses exceed the total capital gain in any given year, then the remaining capital losses can be carry forwarded in future and offset future capital gains.

No tax refund: While utilising the capital losses, it can reduce the tax liability, but tax payer don’t entitled to get any tax refund.

UK Capital gains tax is a complicated subject, so it’s always best to consult an expert for advice tailored to your situation.