Capital gains taxes are paid on profits generated from asset sales or transfers in the UK once the annual allowance is exceeded. Rates depend on the kind of asset sold and other factors. This article provides a quick guide to CGT and an easy-to-use capital gains tax calculator UK.
Quick Introduction to Capital Gains
A capital gain is the difference between the cost of the UK asset bought and the price it is sold for. Once the gains or profits exceed the annual allowance (tax-free threshold), the seller will have to pay capital–gains tax on the taxable gains. Assets that may incur CGT include but do not limit to the following:
- Property
- Cryptocurrency
- Stock and shares
- Inherited assets
- Gifts
- Paintings
- Jewellery
- Vintage cars
- Any antiques
CGT is added on top of income tax liability and is paid regardless of the taxpayers’ residency status. Profits from a residential property sale must be reported to HMRC within 30 days. For most types of assets, the taxpayer is given 60 days to report and pay any CGT they owe.
Capital Gains Tax Allowances and Rates
Here are how the annual CGT thresholds have changed since the 2022/23 tax year up to 2024/25:
| Tax Year | Annual CGT Allowance |
|---|---|
|
2022/23 |
£12,300 |
|
2023/24 |
£6,000 |
|
2024/25 |
£3,000 |
The £3,000 CGT allowance begins on 6 April 2024. The threshold may be subject again to change after that tax year. Any profit made within the threshold are not taxed, which also means the seller is not obliged to file a tax return. Once the sale exceeds the annual tax-free limit, CGT is due. The 2023/24 tax year rates are as follows:
| Tax Bracket | Investment | Property |
|---|---|---|
|
Basic Rate |
10% |
18% |
|
Higher Rate |
20% |
24% |
|
Additional Rate |
20% |
28% |
The 24% higher tax rate on property begins on 6 April 2024.
Capital Gains Tax Calculator UK Property
Income made from selling a main residential property is not subject to CGT, nor are rental earnings. CGT applies to profits made from the disposal of a second home or a buy-to-let property business.
Disclaimer: This calculator assumes the seller made no other taxable property gains, did not employ tax-loss harvesting methods, is a resident in the UK, and other factors. For a more specific CGT calculation, non-UK residents can use the capital gains tax calculator UK non resident, as they have special rules when it comes to losses and sales of residential properties.
The CGT formula depends on the seller’s specific special circumstances. It is best to work out the amount with a tax expert, as the latter will consider all the factors to determine the most accurate CGT amount.
How to Reduce Capital Gains Tax
The main way to reduce CGT is to maximise the annual CGT allowance. Long-term capital gains also attract a lower bill than short term capital gains tax. Moreover, deductions are allowed when the seller incurs losses. Any allowable loss can be carried forward up to four years to reduce taxable gains in the following years.
Investing in an Individual Savings Account (ISA) or a pension is also a great way to reduce or avoid CGT liability. ISAs are especially most tax-advantaged as they are currently granted a £20,000 tax-free allowance, and potentially another increase for the next tax year.
For more information on how to avoid capital gains tax on property and other investments, talk to Legend Financial’s tax planning experts today.
Frequently Asked Questions
Any CGT liability will have to be reported and paid within 60 days.
Not declaring and paying CGT bill may mean a penalty for the taxpayer that may amount to more than the profits they made.
Starting 6 April 2019, non-UK residents, when they disposed of their main residential property in the UK are subject to CGT.
There are many ways to avoid CGT on selling buy-to-let or other investment properties. It is best to discuss the methods with a tax professional beforehand to ensure the most appropriate strategy.
How Legend Financial Can Help
A simplified capital gains tax calculator may not provide the most accurate CGT bill estimates, especially if you are under special circumstances. To ensure you get the right amount and submit tax returns on time, reach out to our tax experts at Legend Financial. We will also help you strategise your asset disposal in the most tax-efficient ways. Talk to us today!
