What is Capital Gains Tax?
CGT is a tax charge applied to the gain from the sale of something you own. It’s calculated from the gain made, the increase in value of the sale price compared to the purchase price, for an asset held for more than one year.
Typically it's applicable to:
The sale of a business
Valuables including art, jewellery, and antiques
Assets transferred at below their market value
Capital gains on these assets are currently taxed at different rates than those of income tax. This is because purchasing such assets is seen as taking a risk, either entrepreneurial or investment, so the additional burden of risk carries greater potential reward.
How much is Capital Gains Tax in the UK?
The CGT rate you're charged depends on two things:
1. Whether you're a basic rate, higher rate, or additional rate tax payer
2. The type of asset you've sold
When do you have to pay Capital Gains Tax?
CGT isn't as simple as declaring your gain and applying the relevant rate. Firstly there is the annual CGT allowance of £12,300. This is the amount of profit you can make before CGT is applied. If you're gains are under this
amount in the tax year then there is no CGT liability. However, you can't carry forward to the following year if you don't make use of the allowance when selling your assets.