Capital Gains Tax Facts

We consider the taxation of capital gains and some basic facts around Capital Gains Tax (CGT).

A capital gain arises when certain capital (or ‘chargeable’) assets are sold at a profit. The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).

CGT annual exemption:

Every tax year each individual is allowed to make gains up to the annual exemption without paying any CGT. The annual exemption for 2020/21 is £12,300 (£12,000 in 2019/20). Consideration should be given to ensuring both spouses/civil partners utilise this facility.

Exceptions to the CGT rates

The rates of CGT are generally 10% and 20%. However, 18% and 28% rates apply for carried interest and for chargeable gains on residential property that does not qualify for private residence relief.

If you are looking to know more; please have a look at our Capital Gains Tax page.

Selling at less than the Market Value:

CGT may also apply if you give away an asset or sell it for less than it is worth. This is because CGT under these circumstances is calculated based on the market value of an asset at the time of its disposal, not the amount of money (if any) that you sell it for. HMRC can check your valuation and it is important to keep detailed records regarding the sale and purchase of the asset.

Business assets you may need to pay tax on include:

• land and buildings
• fixtures and fittings
• plant and machinery, for example, a digger
• shares
• registered trademarks
• your business’s reputation

There are various tax reliefs available that can significantly reduce or delay the amount of CGT you are required to pay such as Entrepreneurs’ Relief, Business Asset Rollover Relief and Incorporation Relief. There is generally no CGT payable on gifts to your spouse, civil partner or to a charity.

Capital Gains Tax (CGT) is normally required to be paid by self-employed sole traders or as part of a partnership. It is important to note that CGT is not payable by limited companies or unincorporated associations when they sell an asset and make a gain. Instead, the gain (less any allowable costs and reliefs) is subject to Corporation Tax.

If you are looking to know about this; feel free to contact us.