Capital Gains Tax (CGT) is a tax on the profit (capital gain) realised upon the sale of non-inventory assets that were purchased at a cost amount that was lower than the amount realized on the sale. The tax is not applied to the total sale amount but only on the gain made from the sale. CGT rates and allowances can vary based on the type of asset and the taxpayer's income tax band.
CGT Rates for Different Assets
For the tax year 2023/24, the CGT rates are as follows:
- Shares: Basic rate taxpayers are charged 10%, while higher rate taxpayers are charged 20%.
- Residential Property: Basic rate taxpayers face an 18% CGT, whereas higher rate taxpayers are levied 28%.
- Bitcoin/Cryptocurrency: Similar to shares, with basic rate taxpayers at 10% and higher rate taxpayers at 20%.
- Other Assets: These follow the same rate as shares and Cryptocurrency; 10% for basic and 20% for higher rate taxpayers.
Capital Gains Tax Allowance
For the 2023/24 tax year, the CGT allowance is £6,000, reduced from £12,300 in the 2022/23 tax year. This allowance means you only pay CGT on profits exceeding this threshold across all your Capital Gains, not per individual asset.
Separation from Other Earnings
CGT is calculated independently from other forms of income such as wages, self-employment income, or rental income. Therefore, profits that are subject to CGT should not be aggregated with income that is subject to Income Tax and National Insurance contributions.
CGT Exemptions
- Moving House: Selling your primary residence usually does not attract CGT due to Private Residence Relief.
- Inheritance: Transferring property to a spouse, civil partner, or direct descendant upon death typically does not incur CGT, especially if the property remains their primary residence.
Paying Capital Gains Tax
Individuals who realize a capital gain above the CGT allowance must declare this profit on a Self Assessment tax return and pay the due tax. This process involves calculating the gain, applying the appropriate tax rate, and accounting for any allowable deductions or reliefs.
