The capital gains tax is the one levied on income or profit made by a person from the sale of any asset that has appreciated in value. The tax is paid by the following people: individuals, trustees, and personal representatives residing in the UK.
UK Capital Gains Tax
CGT is charged on the profit, or gain, you make from selling, or disposing of, an asset. More specifically, it is not the tax applied to the total money received from a sale, but one levied on the gain made calculated as the difference between the selling and buying prices.
For example, if you had purchased an asset for £5,000 and then sold that same asset for £25,000, the capital gain would be £20,000. As mentioned, each tax year, individuals are permitted a certain amount of capital gain before CGT is applied; this is called the Annual Exempt Amount or AEA.
For the tax year 2024-2025, the AEA is £3,000, considerably lower than the £12,300 applied in earlier years. That essentially means that if your total gains are lower than this threshold, you won’t pay a single pence in CGT. In most cases, it is half that for trusts, and it currently stands at £1,500.
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Who is required to pay UK Capital Gains Tax?
CGT is usually charged on any gains made by individuals (and certain types of trusts) who are UK tax residents. Specific rules can be complex, and various factors should be considered in determining eligibility.
The basic requirement for paying CGT is being a UK tax resident. If you are a UK resident for tax purposes, then that encompasses spending a part of your year abroad.
The precise criteria for determining residency can be complex and depend on various factors, including time spent in the UK, family ties, and the nature of your employment.
Individuals:
- UK Residents: Any individual who is a UK tax resident and makes a chargeable gain on the disposal of an asset is generally liable for CGT.
- Non-UK Residents: Non-UK residents are usually only liable for CGT on gains arising on the disposal of UK residential property.
Trusts
- Certain types of trusts are liable to CGT on gains arising from the disposal of trust assets. Specific rules operate, based on the type of trust and its residency status.
Companies
- Companies do not pay CGT. Instead, they pay Corporation Tax on their profits including gains made on selling assets.
Other Bodies
- Other bodies, for example, partnerships and clubs, could be liable to CGT in certain circumstances.
- Domicile: Although residence is the major determinant of CGT liability, domicile may also be a relevant factor in some cases. UK domicile subjects an individual to tax on worldwide income and gains, with certain exemptions and reliefs available if not so resident.
- Offshore Assets: Chargeability of gains to CGT on offshore assets requires that certain conditions be met.
Assets Subject to UK CGT
Capital Gains Tax is a tax charged on the profit made after selling an asset that has appreciated in value over time. Although almost any asset is subject to CGT, there are particular groupings that normally come under its ambit.
Common Assets That Come Under CGT
Property:
- Residential property: These include houses, flats, apartments.
- Commercial property: Buildings used for business purposes, such as offices, shops, industrial units.
- Land: This includes agricultural as well as undeveloped land.
Shares and Securities:
- Stocks and shares in companies.
- Bonds, debentures, and gilts.
- Investment trusts and unit trusts.
- Options and derivatives.
Business Assets:
- Machinery and equipment used in a business.
- Vehicles used for business purposes.
- Business premises.
- Goodwill of a business.
Collectibles:
- Artwork, paintings, and sculptures.
- Antiques and vintage items.
- Stamps, coins, and other collectibles.
- Wine and other valuable beverages.
Other Assets:
- Jewellery and precious metals.
- Intellectual property rights (patents, copyrights, trademarks).
- Certain personal possessions with high value.
- Personal Use Assets: Otherwise exempt from CGT, when a personal-use asset initially used is subsequently used as a business asset, gains upon disposal may be chargeable.
- Exemptions and Reliefs: There are those assets or situations when exemption or relief is accorded, which either diminishes or eliminates any CGT liability. These include Principal Private Residence Relief on residential property and Business Asset Disposal Relief, among others.
- Timing of Disposal: The period of holding may impact the rate of CGT. Gains from short-term disposals are generally subject to a higher rate of tax than gains from long-term disposals.
UK Capital Gains Tax Rates
You usually pay Capital Gains Tax in the UK based on your income tax band for the year and also the type of asset you have sold.
General Rates:
- Basic Rate Taxpayers: If your total income (before taking off the capital gain) is within the basic rate income tax band you pay
- 10% on most assets
- 18% on residential property
- Higher Rate Taxpayers: If your total income, including capital gain, is higher than the higher rate income tax threshold, you will pay :
- 20% on most assets
- 24% on residential property
Other Considerations:
- Carried Interest: Gains from carried interest normally for investment fund managers are charged to tax at higher rates:
- 28% for basic rate taxpayers
- 28% for higher rate taxpayers
Trusts:
- 20% on most assets
- 24% on residential property
Personal Representatives:
The rates of CGT that apply to personal representatives are normally the same as those for individuals.
- Your income: Depending on the whole of your income, including any capital gains, means the rate you pay. If your total income is below the higher rate income tax threshold, you will pay the lower CGT rate.
- Residential property: Gains from selling residential property are generally taxed at a higher rate than other assets.
- Annual exempt amount: You have an annual exempt amount which you can use to offset capital gains before any tax is due. This is, for 2023/24, £12,300.
- Trusts and personal representatives: There are different CGT rates for trusts and personal representatives of deceased persons.