When it comes to tax planning, you must take Capital Gains Tax (CGT) into consideration.
CGT is a distinctive category of tax levied on the net profit gained when disposing of an asset.
The tax becomes effective when assets held for over a year are either transferred to a different individual or sold.
CGT can be applied to a range of assets, ranging from profits obtained from share sales, business disposals, to inherited properties or additional homes.
Importantly, the CGT spectrum has expanded recently to include profits made from cryptocurrency transactions.
Understanding the CGT rates
The first £6,000 worth of individual gains are free from tax, and this figure extends to £12,000 for assets jointly held by married couples or civil partners. Beyond these exemptions, tax obligations arise.
The tax rates applicable are contingent on whether you fall into the basic, higher, or additional rate Income Tax bracket. For taxpayers in the higher or additional rate categories, the CGT rates stand at:
28 per cent for gains obtained from additional residential property (excluding the primary residence).
20 per cent for gains obtained from other taxable assets.
Reporting CGT
Unlike conventional Income Tax, which is directly deducted from your earnings, CGT is not automatically collected by HM Revenue & Customs (HMRC).
The responsibility lies on the taxpayer to independently submit a comprehensive and accurate report to HMRC using a Self-Assessment tax return.
For a residential property that is subject to CGT report, the deadline to report this to HMRC is 60 days post-sale.
If CGT applies to other eligible assets, the report can be submitted in the subsequent tax year post the asset’s disposal, using a Self-Assessment tax return.
For those eligible to utilise the Government’s ‘real-time’ CGT service, the deadline extends to 31 December in the tax year following the sale.
Consequences of non-compliance
Similar to other tax regimes, failure to accurately report CGT or neglecting to report it altogether can lead to hefty financial penalties and may potentially trigger a comprehensive investigation by HMRC.
Contact us for advice on tax planning and ensuring you fulfil your obligations.
