What You Need to Know About Personal Capital Gains Tax

September 26, 2016 10:09 am Published by

CGT Tax PlanningIf you own a property asset or a second home and decide you want to sell it, be mindful that if it has increased in value since you acquired it – you will be susceptible to tax on the ‘capital gain’ (profit) made on the sale of that asset. Capital gains tax is also applicable to possessions like antiques or art, not just properties.

The rate of capital gains tax due has been reduced significantly from the last tax year, read below to find out more about what capital gains tax is and how it affects you.

What is Capital Gains Tax?

Capital gains tax (CGT) is a tax paid on the increase in the value of possessions or assets in the time that they have been owned – such as a second home, shares or item that increases in value with age such as an antique. The tax is due when the asset is sold or disposed of, either by selling it, giving it away, swapping it or getting compensation for it. Keep in mind capital gains tax is a tax on the profit made through sale, not the amount of money received. The tax will be due to be paid before the end of the tax year, for some it can be included on their annual self-assessment submitted to HMRC.

What’s the Capital Gains Tax Rate?

The capital gains tax rate is the percentage of the value that you are due to pay once it has been disposed of. The rate was significantly cut in the 2016 budget. From April 2016, basic-rate income tax payers will pay CGT at 10% whereas payers of a higher tax rate will be charged 20%, this Is down from 18% and 28% respectively, these higher rates still apply to all on the sale of second homes.

Everybody has a yearly tax-free allowance of £11,100, meaning they do not have to pay capital gains tax on the amount they make up to this figure.

Year 2015-16 2016-17
Tax-Free Allowance £11,100 £11,100
Rate 18% or 28%, depending on your tax band 10% or 20%, depending on your tax band, except for second homes- where rates remain 18% and 28%

Capital Gains Tax on a Property

Rental Property, if you let all or part of your home and choose to sell it, a proportion of any gain made could be taxable, having a single lodger does not class as letting out your home.

Second Home, if you are the owner of more than one home, you can nominate which will be tax-free, this doesn’t have to be the one you live in the most. Generally, people nominate the residence expected to make the largest gain on sale. As of 6th April 2015, homeowners are able to nominate an overseas property – provided they live in it for at least 90 days throughout the tax year.

Married couples can only nominate one residence, if you are an unmarried couple, you can each nominate a different home to be your main residence.

Inherited Home, if you are left a home in a will, you inherit the property at its market value at the time of inheritance. If you choose to sell the property without making it your home, you will be due to pay CGT on the increase in value between the date of inheritance and the date of sale. This is applicable even when inheritance tax has just been paid.

You can use the HMRC capital gains calculator to find out how much might be due on your property.

Remember you can offset expenses against your capital gain. For example, if selling a property, you can offset the estate agents fees, solicitor’s fees and any other costs to market the property.

Capital Gains Tax Exemptions

Along with the tax-free allowance you are eligible for, there are some circumstances where you will be exempt from paying Capital Gains Tax:

  • When selling your main home
  • Gifts between husband and wife or registered civil partner
  • Money received through betting and lottery winnings
  • National savings and investment products, pensions and child trust funds
  • Proceeds from life insurance policies

Capital Gains Tax on Personal Possessions

You may be liable to pay capital gains tax when selling a personal item worth more that £6000. Items included are jewellery, art, antiques, coins, stamps and sets of collectables like ornaments. If you jointly own an item, you will be exempt from the CGT if your share is worth less than £6000.

To work out your gain (profit) it is usually the difference between the acquisition price and what you sell it for. However if it was a gift or inheritance, you may use the market value of the item when you received it.

You can reduce CGT by offsetting any expenses you incurred to sell the item like advertising or valuation fees. Costs for improving the item can also be offset but not any costs for repairs.

You will not need to pay CGT on any items which are deemed to have a limited lifespan (under 50 years), this includes watches, clocks and machinery.

Need Some Capital Gains Tax Advice?

If you are considering selling an asset you are likely to make a considerable profit on, forward planning is important. At First Call Financials, we can provide tax advice on asset acquisition and disposal and the various tax reliefs, give us a call on 0117 379010 to find out more.

 

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