Capital Gains Tax: Selling A Property

Capital Gain Tax Overview

Capital gains tax is a tax imposed on the profit made from the sale or disposal of an asset that has increased in value. In this blog post, we will discuss the UK capital gains tax in detail, including what it is, how it works, and what the current rates are.

What is Capital Gains Tax?

Capital gains tax is a tax on the increase in value of an asset when it is sold or disposed of. This tax applies to a wide range of assets, including property, shares, and other investments. The capital gains tax is not a separate tax, but it is added to your income tax bill.

How Does UK Capital Gains Tax Work?

UK capital gains tax applies to any asset that has increased in value and is sold or disposed of. The amount of tax payable depends on the amount of the gain, the asset's value, and the individual's tax bracket.

The tax is calculated by deducting the cost of the asset from the amount received on disposal and then applying the relevant tax rate. For individuals, the capital gains tax is calculated as follows:

1. Deduct the cost of the asset from the amount received on disposal
2. Deduct the annual exempt amount (£6,000 for the tax year 2023/24)
3. Apply the relevant tax rate (10% for basic rate taxpayers (or 18% on residential property) and 20% for higher rate taxpayers (or 28% on residential property))

What Assets Are Exempt from Capital Gains Tax?

Not all assets are subject to capital gains tax in the UK. The following assets are exempt from capital gains tax:

• Personal belongings such as jewellery and antiques (worth less than £6,000)
• Betting, lottery, and pools winnings
• UK government gilts and premium bonds
• Main homes (if certain conditions are met)
• Assets held in an ISA or pension fund

What Are The Current Capital Gains Tax Rates?

The current capital gains tax rates for the tax year 2023/24 are as follows:

• Basic rate taxpayers: 10% on gains up to £50,270
• Higher rate taxpayers: 20% on gains over £50,270

For residential property, the rates are:

• Basic rate taxpayers: 18% on gains up to £50,270
• Higher rate taxpayers: 28% on gains over £50,270

It is important to note that the rates and thresholds for capital gains tax are subject to change, and it is essential to consult with a tax professional to ensure you are up to date with any changes.

Failure to comply with capital gains tax regulations can result in significant financial penalties, so it is always advisable to seek professional advice if you are unsure about your tax obligations.