Capital Gains Tax (CGT) is a levy charged on the profit or ‘gain’ from a business asset that is incurred when it is sold. It is generally paid by self-employed traders as well as those in business partnerships, however, it must also be paid by individuals who have sold certain personal assets for more than £6,000.
Capital Gains Tax For Businesses
If you are self-employed or one half of a business partnership, you will need to pay capital gains tax on any gains above your tax free allowance which for the financial year 2021/22 is £12,300.
What Types of Things Must You Pay Capital Gains On?
- Lands and buildings
- Fixtures and fittings
- Plant and machinery e.g. diggers
- Shares
- Registered Trademarks
How to Work Out Your Gain
You’ll need to calculate your gain to find out whether or not you need to pay tax.
This is usually the difference between what you paid for your business asset and what you sold it for.
If you sold the asset for less than it is worth to help the buyer or inherited the asset and don’t know the Inheritance Tax value then you should use the market value to calculate the gain.
You can also deduct some of the costs associated with buying, selling or improving your asset from your gain. These include:
- Fees e.g. advertising assets
- Costs to improve assets (not including normal repairs)
- Stamp Duty Land Tax and VAT (unless you can reclaim the VAT)
Costs which cannot be deducted include:
- Interest on a loan to buy your asset
- Costs you claim as business expenses
Work Out if You Need to Pay Capital Gains Tax
Once you have calculated your gain, you’ll need to work out if you need to report and pay capital gains tax. If you’re in a partnership, you need to work out your share of each gain or loss and the nominated partner must fill in the SA803 form in order to report your gains.
Capital Gains Tax for Individuals
If you are an individual planning to sell something such as a property, shares in a company or another high value possession like jewellery and antiques for over £6,000, you may need to pay capital gains tax.
Capital Gains on Properties
You may be wondering if you will need to pay capital gains tax when you sell your home. Generally, you won’t have to pay CGT on your home so long as:
- You have one home and you’ve lived in it as your main home for the entire time you’ve owned it
- You haven’t let part of it out (this doesn’t include having a lodger)
- You have not used a part of your home exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use)
- The grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
- You didn’t buy it just to make a gain
If all of these apply, you will automatically receive a tax relief called Private Residence Relief and won’t have to pay CGT.
However, if any of the above do apply, you will likely have some capital gains to pay. For example, if you have a second property, you’ll need to pay capital gains tax if you come to sell it.
What Assets are Exempt from Capital Gains Tax?
Other assets which are exempt from capital gains tax include:
- Private motor cars, including vintage cars
- Gifts to UK registered charities
- Some government securities
- Personal possessions where the sale proceeds are less than £6,000
- Prizes and betting winnings
- Cash
- Assets held in ISAs
- Foreign currency held for your own use.
You also don’t usually need to pay tax on gifts to your husband, wife or civil partner.
Need Some Support With Taxes?
At Ryans, we offer help with both personal tax planning and business tax planning, helping you to make sure you’re making the most of any tax relief whilst also staying fully compliant with HMRC’s many strict rules and regulations. Get in touch with a member of our team today to discuss how we can help you.