Capital Gains Tax (CGT) – When and why do I have to pay this!

By Terry Cowan

Capital Gains Tax (CGT) – When and why do I have to pay this!

So to put it simply, if you own a possession that increases in value during the time you have owned it, when you sell or dispose of that item it could be liable to Capital Gains Tax (CGT).  Such examples of these are a second home, shares, business, antiques, etc.

You don’t pay CGT on selling your car, shares held in an ISA or even if you sell your only home for a profit.

You must make a certain amount of profit on your item before you are taxed on them, and the tax rate you pay depends on whether you’re a basic-rate or higher-rate taxpayer.

There is a CGT free allowance, for the current year it is £11,300. If you don’t use your CGT free allowance, it is lost.  And you only get one CGT free allowance per financial year (financial year is the year ending 5th April).

If you sell a possession that is owned jointly, then both of the owners are entitled to the £11,300 each.
Remember if you don’t use your allowance in a tax year, it is lost for good.

To work out your profit, you will need to know how much you paid for the asset, along with any other fees attached to the purchase (for example on a house you may have paid agents fees in addition).  You then minus the total purchase cost from the sale price, leaving you hopefully with a profit.  This is the gain, that you may have to pay tax on.

If your capital gain is on an investment property such as a second home or a buy-to-let, the rates you pay tax are:

  • basic-rate taxpayers pay CGT at 18%
  • higher-rate and additional-rate taxpayers CGT at 28%

If your capital gain is on something other than an investment property the rates you pay tax are:

  • basic-rate taxpayers pay CGT at 10%
  • higher-rate and additional-rate taxpayers CGT at 20%

Remember if your gain is below the CGT free allowance currently £11,300 and you haven’t used this tax free allowance in the same financial year (from 6th April 2017 to 5th April 2018) you won’t have any CGT to pay.

If you do have CGT to pay, you must include the figures on your personal tax return.  Once your tax return has been submitted for that year, the payment will be due in the on 31st January.  You will be required to show your workings.
If you don’t complete a tax return, you can report it through the online .gov service.

So as an example, you sold your buy-to-let in October 2017 with achieved a large gain, you must complete your tax return online by  31st January 2019.  The payment will be due that same day.  In the same example, if you complete the tax return in April 2018.  The payment isn’t due until 31st January 2019.

Please note, as of April 2019 onwards, CGT on property sales will become payable within 30 days.

There are normally reliefs given to landlords when they sell a rental property.  In this case it is advisable that you seek professional tax advice, to ensure you are claiming the correct amount of tax relief.

If you are thinking of selling a possession that could well attract Capital Gains Tax but aren’t sure of your workings give us a call or send us an e-mail and we will be happy to help.