Capital Gains Tax Advice - Where Do I Start?
Reviewed by Assistant Operations Manager, Helen Lambkin
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Helen has been part of the RIFT family for over 12 years, and for the last 8 years, she’s been serving as our Assistant Operations Manager. She’s the go-to person for making sure the team is fully...
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This article's designed to help you:
- Get to grips with the basics of Capital Gains Tax.
- Make the most of your tax situation.
- Keep on the right side of HMRC.
What is Capital Gains Tax?
When you boil it down to the basics, Capital Gains Tax (CGT) isn’t all that complicated. At its simplest, it’s just the tax you owe on your profits when you sell something that’s gone up in value since you bought it.
Keep in mind that it really is just the profit you make when you dispose of an asset that counts for Capital Gains Tax, rather than its entire value. The amount you originally paid for it makes a huge difference to the tax you owe. The more it cost you, the less profit you made (and have to pay tax on).
Capital Gains Tax & Self-Assessment
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What does "dispose of" mean?
All clear as crystal so far, right? Well, not quite. While those are the bare bones of it, there’s a fair bit more to know about Capital Gains Tax. For example, you don’t technically even need to sell your “asset” to end up paying tax on it. Capital Gains Tax can hit you any time you “dispose” of something it applies to. That can mean when you swap it for something else, give it away or even claim compensation for it if it gets lost or stolen. All of these situations can count as disposing of your asset.
If you decide to sell your business, or some of its assets, Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) which allows you to pay a reduced Capital Gains Tax rate and maximise your profits when you sell up.
Items you may pay Capital Gains tax on
So what exactly is an “asset” for Capital Gains Tax? In general terms, if it’s a physical, movable thing that’s worth at least £6,000, then it probably counts as an asset. That could mean artwork, jewellery, or even book collections and wines. There’s an exception for privately owned cars, but other kinds of vehicles can still count for the tax.
Read more about capital gains allowances.
If you dispose of property that’s not your main home then you’ll probably owe Capital Gains Tax on your profits. In fact, if you were using your main home for business or letting it out, even that can count for the tax. The same goes for any shares (unless they’re in an ISA or Personal Equity Plan) or business assets you dispose of.
Anything with an expected lifespan of 50 years or under will generally be exempt, but the rules can get fiddly here, so it’s probably best to get professional advice if you’re not sure where you stand.
If you decide to sell your business, or some of its assets, Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) allows you to pay a reduced Capital Gains Tax rate and maximise your profits when you sell up.
What are your allowances?
Like a lot of UK taxes, there’s a threshold you have to hit before you start owing anything on your capital gains. For the 2024/25 tax year, for instance, there’s a tax-free allowance of £3,000, or £1,500 for trusts. If your overall profit from disposing of assets ends up below this amount, you won’t pay any Capital Gains Tax on it.
Gifts to your spouse
If you’re married or in a civil partnership, then the rules for Capital Gains Tax have a little flexibility in them. In fact, unless you were separated and not living together at all during a tax year, you won’t pay any Capital Gains Tax if you “dispose of” an asset to them. At least, not unless you did it so their business could then sell it on.
Watch out, though – your spouse or civil partner could easily still get hit with Capital Gains Tax if they later dispose of the asset. If that happens, the rules work in the usual way. They’ll pay tax if they sell the asset, swap it, give it away or claim compensation for it. In this case, the profit they pay tax on will be based on the amount you originally paid for the asset, compared to the value they dispose of it for.
More on Marriage Allowance
Gifts to charity
There’s another general exemption for Capital Gains Tax on items you give to charities. However, a wrinkle in the rules means that you could still have to pay CGT if you sell the item for less than its market value (but still make a profit compared to what you paid for it). Again, talk to a trusted professional if you’re not 100% sure whether you need to pay Capital Gains Tax or not.
What is the rate of Capital Gains Tax?
When you pay Capital Gains Tax, the rate you’re hit with depends on the highest tax band you fall into. Basic rate taxpayers, for example, pay a percentage based on the size of their gains (their overall profit), their taxable income and whether or not the gains come from residential property. We know, that sounds complicated – and it definitely can be.
- First, you work out what your total taxable income adds up to, meaning your earnings minus your tax-free Personal Allowance and any other Income Tax relief you qualify for.
- Next, you calculate your total taxable gains, minus your Capital Gains allowance. Remember that this is separate from your Income Tax Personal Allowance.
- Add your total taxable gains to your taxable income. If that amount is still in the basic rate tax band for Income Tax, you’ll pay 10% Capital Gains tax on your profits from disposing of assets. However, if any of your gains are from residential property, you’ll pay 18% on those instead.
- If you’re in the higher rate tax band (before or after you’ve added your taxable gains to your taxable income), then you’ll pay 20% Capital Gains tax instead, or 28% on residential properties.
- If you're selling a business, or some of its assets, Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) allows you to pay a reduced Capital Gains Tax rate and maximise your profits when you sell up
Read more about capital gains allowances.
What if I make a loss when I dispose of an asset?
One bright side to the Capital Gains Tax system is that it cuts both ways. If you make a loss from disposing of assets, you can report it to HMRC to deduct it from your total taxable gains for the year. These are called “allowable losses”. You can actually report losses like this for up to 4 years after the end of the tax year when they occurred. Obviously, if your losses from disposing of assets mean your total taxable gains drop below the tax-free allowance for CGT, you’ll end up paying no tax on them.
If you decide to sell your business, or some of its assets, then make sure you claim your Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) which allows you to pay a reduced Capital Gains Tax rate and maximise your profits when you sell up
If you want to learn even more about Capital Gains Tax – particularly how it compares and overlaps with Inheritance Tax, check out our other article, “The Difference between Inheritance Tax and Capital Gains Tax”. In the meantime, keep checking back here for more money tips and updates. We’re experts at saving you cash and we’re always here to help. That’s the reason why you’re better off with RIFT.
Free tax refund checker: Our tax rebate calculator will give you an instant estimate of how much tax you could be owed back from HMRC.
Start NowRIFT Roundup: what it all means
- Capital Gains Tax (CGT): A tax you pay when you “dispose of” certain kinds of asset at a profit.
- Disposing of assets: Selling, swapping, giving away or claiming compensation for something that counts for CGT.
- Personal Allowance: The amount you can earn in a year before paying any Income Tax.
- CGT Allowance: The amount of profit you can earn in a year from disposing of assets before paying CGT.
