Capital Gains Tax explained

Knowledge base from Boox

By Lynne Gowers on 12th October 2016

Capital Gains Tax explained

At Boox we are committed to making your money work for you, and this includes the best accounting advice in the business.

When you dispose of any significant asset, naturally you want to make sure you do your utmost to keep hold of as much as possible of the profits, while staying on the right side of the tax man. In this article we shine a spotlight on Capital Gains Tax.

Capital Gains Tax – what is it?

Capital Gains Tax is the tax you pay on the gain you make when you dispose of an asset which has increased in value from when you acquired it. As well as selling, “disposing of” includes giving something away as a gift, swapping it or getting compensation for it, such as an insurance payout.

Capital Gains tax is payable on the profits you make when you dispose of the following:

  • Property that isn’t your main home
  • Most personal possessions worth £6,000+ (apart from your car)
  • Your main home if you have let it out, used it for business purposes or if the grounds are more than half a hectare, (approximately one and a quarter acres) and are not considered to be appropriate to the size and character of the house.
  • Business assets
  • Shares that aren’t in an ISA or PEP

You only have to pay Capital Gains Tax on your total gains above an annual tax-free allowance. You are not normally required to pay it on gifts to your spouse, civil partner or charity.

You also don’t pay it on:

  • ISAs or PEPs
  • Betting, lottery or pools winnings
  • UK government gilts and Premium Bonds

If you live abroad

From the 6th April 2015 Non Residents are now required to pay Capital Gains tax on any gains made on residential property in the UK, if they stayed in their UK property for less than 90 days in the previous tax year. In this instance the gain needs to be reported to HMRC within 30 days of the sale and any Capital Gains tax due paid within the same time period.

You don’t pay Capital Gains Tax on other UK assets unless you return to the UK within 5 years of leaving.

Inheriting assets

If someone leaves you an asset when they die, Inheritance Tax is payable by the estate of the deceased. You only pay Capital Gains Tax if you dispose of it at a later date for more than the valuation at the time of inheritance.

Working out if you need to pay Capital Gains Tax

For every asset you have disposed of in the tax year in question (April 6th to April 5th of the following year), work out how much you made when you sold / otherwise disposed of it.

Now add together the gains. If you have made any losses on assets you have disposed of, you can deduct these to reduce your total gain, or if you have any available losses from earlier tax years these can be brought forward (indefinitely) and offset as well.

If your total taxable gains are under your Capital Gains Tax allowance, then you don’t have to pay any Capital Gains Tax.

You should report any Capital Gains Tax you need to pay in the appropriate section of your Self Assessment tax return.
Even if you have no tax to pay, you still need to complete this section of your tax return, but just select “No” for each question in the “Details of chargeable assets” page. If you have made a loss you will still need to report it to HMRC, otherwise it will not be available to carry forward to later tax years.

HMRC will calculate and tell you what you need to pay. The normal tax return and payment deadlines apply to Capital Gains Tax except for non-residents as detailed above.


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