What Is Capital Gains Tax UK?
Capital gains tax (CGT) is a tax imposed on the profit made from the sale or disposal of an asset that has increased in value since its acquisition. In the United Kingdom, CGT is applicable to individuals, trustees, and personal representatives of a deceased person’s estate.
CGT is levied on a wide range of assets, including property (excluding a primary residence), stocks and shares, business assets, and personal possessions worth more than £6,000. The tax is calculated based on the difference between the sale price and the original purchase price of the asset.
The current rates for CGT in the UK depend on the individual’s income tax band. For basic rate taxpayers, the CGT rate is 10% on gains from assets other than residential property and 18% on residential property gains. Higher and additional rate taxpayers face a 20% CGT rate on non-residential property gains and 28% on residential property gains.
It is important to note that there are exceptions and reliefs available that may reduce the amount of CGT payable or even exempt certain gains. These include the annual exempt amount, which allows individuals to make gains up to a certain threshold (currently £12,300 in the tax year 2021/22) without being subject to CGT.
FAQs about Capital Gains Tax UK:
1. What is the annual exempt amount for CGT in the UK?
– The annual exempt amount for the tax year 2021/22 is £12,300.
2. Is CGT payable on the sale of a primary residence?
– No, CGT is not applicable on the sale of a primary residence, as it is covered by the Principal Private Residence Relief.
3. Can losses be offset against capital gains to reduce CGT liability?
– Yes, capital losses from the same tax year or carried forward from previous years can be offset against capital gains to reduce the CGT liability.
4. Are there any reliefs or exemptions available for CGT?
– Yes, there are various reliefs and exemptions available, such as Entrepreneur’s Relief, Investors’ Relief, and Gift Hold-Over Relief, which may reduce or eliminate the CGT liability in certain circumstances.
5. Are gifts subject to CGT?
– Gifts to individuals are generally exempt from CGT, except for gifts of assets that are not exempt, such as residential property or shares in a company.
6. How is CGT calculated for jointly owned assets?
– Each individual’s share of the gain is calculated separately, based on their ownership percentage, and CGT is payable accordingly.
7. Is there a time limit for reporting and paying CGT?
– CGT must be reported and paid within 30 days of completing the sale or disposal of the asset.
8. Can CGT be deferred through reinvestment in another asset?
– Yes, under the rules of the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), CGT can be deferred by reinvesting the gains into qualifying investments.
9. Are there any special rules for non-residents?
– Non-residents are subject to CGT on gains made from UK residential property only. The rates and rules may differ from those applicable to UK residents.
10. How does inheritance affect CGT liability?
– Inheritance of assets generally results in the base cost of the asset being reset to the market value at the date of death, potentially reducing the CGT liability when the inherited asset is later sold.
11. Can losses from one type of asset be offset against gains from another type?
– Yes, capital losses from one type of asset can be offset against gains from another type, subject to certain restrictions and rules.
12. How is CGT calculated for assets acquired before March 1982?
– For assets acquired before March 31, 1982, the CGT liability is calculated based on the market value of the asset on that date, rather than the original purchase price.
These FAQs provide a general understanding of the key aspects of Capital Gains Tax in the UK. However, it is always advisable to seek professional advice from a tax specialist or accountant to ensure compliance with relevant tax laws and regulations.