Annual capital gains tax is the amount of tax you pay on any profit you make from selling assets such as second homes, stocks and shares or profitable items such as jewellery or antiques.

The annual capital gains tax allowance is decided by the government in their annual budgets, in the previous tax year 2022-23 the allowance was £12,000 however, in the current tax year 2023-24 the allowance stands at £6000 with it set to be cut again in April 2024 for the upcoming tax year 2024-25.

If your profits exceed the capital gains tax allowance then you will be taxed. The amount of tax you will pay depends on what it is that you’re selling and the income tax bracket you fall into once the profits from the sale have been added to your annual income.

What Is Capital Gains Tax?

Capital gains tax is a tax on the profits gained from selling an asset that has increased in value in the time that you have owned it. Whether you have to pay capital gains tax depends on several factors as not all assets qualify for capital gains taxes. 

It is likely that you will need to pay capital gains tax on:

Even if you didn’t buy the asset personally but instead were gifted it or have inherited it you’ll still need to pay capital gains tax when you come to sell it on to someone else.

How Much Capital Gains Tax Will I Need To Pay?

There are 2 different rates of capital gain tax, what you pay will depend on what you are selling, how much profit has been gained from the transaction, your income tax bracket and the current annual capital gains tax allowances. Your profits will be added to your income to calculate how much tax you owe, so it is important to remember that this may push you into a higher tax bracket than you were in originally.

The different rates of capital gains tax are:

If the beneficiary of a will sell assets that they have inherited then they may need to pay capital gain tax if the inherited assets go up in value since the person’s death. They can use capital gain tax allowances but then they would have to pay tax at the higher rates.

What Is The Annual Capital Gains Tax Allowance?

Everyone is entitled to the capital gains tax allowance when selling an asset, profits below the capital gains tax allowance threshold do not qualify for capital gains tax, anything above the threshold and you pay tax on the sale of the asset based on your income tax bracket.

In the last tax year 2022-23, the annual capital gains tax allowance was at £12,300 or £6,150 for trusts. This meant that if you earned profits below £12,300 from the sale of assets you didn’t have to pay capital gains tax. However, in this tax year 2023-24, the threshold was lowered to £6,000 or £3,000 for trusts. In April 2024, the annual capital gains tax threshold is set to be lowered yet again to £3,000 or £1,500 for trusts. As a result, more people will be taxed on the sale of their assets.

If you don’t use the annual capital gains tax allowance within the tax year you can’t claim on it later or carry it forward.

uninhabitable properties

Capital Gains Tax On Selling Person Possessions

When selling personal possessions worth more than £6,000 you must pay capital gains tax. Personal possessions could include anything that could be seen to be a profitable asset such as jewellery, stamp collections, antiques, artwork or coin collections. You can deduct the costs that relate to the sale of the items such as advertising costs or auction costs to improve your taxable standing but any costs for repairs should not be included.

Capital Gains Tax On Stocks & Shares

Capital gains tax is still applicable to the sales of stocks and shares if they are now more profitable than when you first purchased them and the profits exceed £6,000. The profit gained is the difference between what you originally paid for the share and how much you sold it for. Again, you can subtract the costs of sales from the profits to put you in a better taxable position.

Capital Gains Tax On Inheritance

Usually you don’t immediately pay capital gains tax on inherited assets but you may need to pay income tax on any profit earned from inherited assets at a later date. You will be subject to capital gains tax if you sell your inherited assets. Capital gains tax is applied if the value of the inherited assets has risen since the person has passed and the profits from the sale of the assets pass the annual capital gains tax allowance threshold.

Capital Gains Tax On Property

If you are selling a property that is classed as your ‘main residence.’ If you satisfy all of the following conditions you won’t be subject to capital gain taxes:

Married couples and partners can only class one property as their main residence at any one time.

You are liable for capital gains taxes if you are selling a property that has been used for business or has been used as a second home or that you have earned rental income from.

If you own a buy-to-let property that you used to use as your main residence then you could be entitled to claim private residence relief meaning that you won’t be subject to capital gains taxes.

Since April 6th 2020, anyone who makes a taxable profit from a property has to pay the tax within 30 days of the completion of the sale of the property. This change has reduced the amount of time that is required to report to HMRC and pay the tax from 22 months to just under 1 month, which is important to be aware of.

When Does Capital Gains Tax Not Apply?

There are some instances when capital gains tax will not apply as not all assets are eligible for capital gains tax to be paid. You will not be required to pay capital gains tax if you are:

How Do You Calculate Capital Gains Tax?

To work out how much capital gains tax you owe you need to:

This will give you a total amount of tax you will need to pay.

How Should I Pay Capital Gains Tax?

You will need to report and profit made from the sale of assets on your tax return and pay the amount owed. It is important to consider that anyone who has not filed a tax return before will need to register with HMRC first which can take some time to set up and initialise. Before you report your capital gains, you will need to calculate your cost for each capital gain or loss, gain information about the fees and what your profit was from each asset, and provide HMRC with any other information that is required for the claim such as any reliefs that you may be entitled to.

There are 2 ways for you to report your capital gains tax return; either via the ‘real-time’ capital gains tax service for UK residents where you need to report your gain by December 31st in the tax year after you sold your asset. Or, you can report it annually via self-assessment tax returns in the tax year after you sell your asset. All tax returns must be made by the 31st January deadline each year. 

How Can CapEx Help?

It can be daunting going through the process of filing a tax return for capital gains taxes especially if you have never done it before, and working out if you are entitled to any relief once you have deducted the annual capital gains tax allowance can also be tricky if clean paper trails haven’t be kept. If you are selling an asset during a stressful or emotional period of time for example if it is an asset that you may have inherited this can also be difficult to do alone. 

CapEx Tax specialists are a team of experts who can help you work out the finer details when making a tax return or claiming different types of tax relief. We can help make the process easier for you and take care to ensure all of your paperwork is of an adequate standard to submit to HMRC for review. 

If you are planning to submit a capital gains tax return or want more information about the capital gains tax allowance for this tax year then contact us today for more details and we can discuss your situation to see how we can help.