What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax on the profit made from selling or disposing of an asset in the UK. It applies to individuals, businesses, and trusts. Assets can include property, shares, and personal possessions worth more than £6,000. Understanding CGT is crucial for anyone looking to sell significant assets, as it can impact the overall profit realized from the sale.
When Do You Pay Capital Gains Tax?
You are liable to pay capital gains tax if your total capital gains exceed the annual tax-free allowance, known as the ‘annual exempt amount.’ For the tax year 2023-2024, this allowance is £6,000 for individuals. If your profits surpass this threshold, it is essential to report and pay CGT on the excess amount. It is calculated when you sell or dispose of an asset, and taxes are based on the gain made during the transaction.
How to Calculate Your Capital Gains
To calculate your capital gains, subtract the purchase price from the sale price of the asset. Additionally, you can deduct any allowable costs associated with buying, improving, or selling the asset. This includes legal fees, stamp duty, and costs for improvements. Understanding these deductions can significantly reduce your final taxable gain. It is advisable to keep thorough records of all transactions to ensure accurate tax reporting.