How Can You Easily Calculate Capital Gains Tax in the UK?

When you sell or get rid of an asset, like property or shares, you will need to pay Capital Gains Tax (CGT). This tax is calculated by subtracting the asset's purchase price from the money that you receive on selling it. The profit you make from the transaction is what determines your tax liability. However, to get the actual profit, you also need to deduct any interest you paid when you originally bought the asset.

Capital Gains Tax is applicable at certain rates, but you can benefit from tax reliefs and allowances before calculating what you owe. So, here you'll learn everything you need to learn about Capital Gains Tax in UK, including its various methods of calculation and the role it plays in property and shares.

What is Capital Gains Tax (CGT)?

Capital Gains Tax, often abbreviated as CGT, is a form of tax that the UK government imposes on the profit (the "gain") you make when you sell an asset that has grown in value. The gain is essentially the difference between the selling price and the original purchase price of the asset.

Common Instances of Capital Gains Tax

While CGT applies to various assets, it is most commonly used in the following scenarios:

• Sale of shares
• Investment funds
• Secondary properties
• Inherited properties
• Company transfers
• Art, jewellery, and antiques
• Assets sold for less than their actual value

However, it is crucial to note that you typically don't have to pay CGT when selling your primary residence.

Capital Gains Tax Rates

The CGT rates in the UK are not universal. They vary depending on the type of asset and the total annual income of the individual. For instance, the current Capital Gains Tax rates for the 2023/2024 tax year are as follows:

1. A 10% tax rate applies to your entire capital gain if your total annual income is less than £50,270.
2. Your entire capital gain will be taxed at a rate of 20% (28% in the case of residential property) if your yearly income exceeds £50,270.
3. There is an allowance to deduct up to £3000 from your taxable capital gains. This tax-free gain is available to those who qualify.

Let's break it down further:

Shares

• Basic rate: 10%
• Higher rate: 20%

Residential property

• Basic rate: 18%
• Higher rate: 28%

Cryptocurrency

• Basic rate: 10%
• Higher rate: 20%

Other

• Basic rate: 10%
• Higher rate: 20%

Allowance for Individuals - Annual exempt amount: £12,300

Allowance for Trusts - Annual exempt amount: £6,150

When Should You Pay Your Capital Gains Tax?

You will be required to pay CGT when your profit from selling assets exceeds a certain threshold. The current CGT allowance is £3000. If your profit for the tax year is less than this amount, you will not have to pay any CGT. However, it's important to note that you cannot carry over any unused allowance to the next year.

For jointly owned assets, both owners can apply their allowances. This effectively doubles the amount you can earn before paying CGT on the sale of an asset to £6000.

Assets Exempted from Capital Gains Tax in UK

Certain types of assets are exempt from CGT. For instance, you do not have to pay CGT on:

• Betting winnings
• Prize Bonds
• Lottery wins
• Sweepstakes
• National Instalments Savings Scheme
• Government stocks
• Certain types of life insurance policies
• Movable property (such as furniture)
• Animals
• Private automobiles

Calculating Capital Gains Tax on Shares

Depending on your tax bracket, you may be subject to a 10% or 20% Capital Gains Tax on stock sales. Here's an overview of how to figure out your final bill.

Things You Need to Know Before Calculating Tax

Before calculating the Capital Gains Tax rate for shares, consider the following:

The Market Value of Shares

When calculating your profit, you may want to use the current share price as a starting point under certain circumstances.

Circumstances of Selling Shares

There are specific rules for determining how much you'll get for your stock if you decide to sell it. These rules apply to shares in the same company bought at different prices and at different times, shares bought through an investment club, shares after a company takeover or merger, and shares from Employee Stock Ownership Plans (ESOPs).

Deduct Costs and Add Reliefs

Certain costs associated with buying or selling your stock can be deducted from your profit. These include broker fees, the Stamp Duty Reserve Tax (SDRT) paid when you purchased the stock, and certain tax reliefs that could reduce or postpone your Capital Gains Tax.

How to Calculate Capital Gain Tax on Shares

Calculating your Capital Gains Tax on shares involves a few steps:

1. Determine the total amount you receive from selling your shares.
2. Subtract the amount you paid to acquire the shares, including any brokerage fees or stamp duty.
3. Deduct allowable expenditure which includes any costs associated with buying, selling, or improving the shares, such as legal fees or valuation expenses.
4. If the result of steps 1-3 is positive, it's a chargeable gain, and if it's negative, it's a chargeable loss.
5. Once you have your chargeable gain, you can apply any relevant tax reliefs, exemptions, or allowances to determine the final amount of Capital Gains Tax you owe.

To make this process smooth and error-free, consider our user-friendly Capital Gains Tax calculator. Simply input your details, including net proceeds, acquisition costs, and allowable expenditures, and let Taxd handle the rest. With our tool, you can quickly determine your chargeable gain or loss and gain clarity on your Capital Gains Tax liability.

How Capital Gains Tax Works on Employees’ Shares

Certain companies offer their employees the opportunity to acquire ownership of the company in which they work. Depending on the scheme, a Capital Gains Tax bill is possible, and it is possible with all schemes if you hold onto your shares and sell them at some point in the future.

Share Incentive Plan

Shares that have been designated for you in a retirement plan can be awarded, purchased, or both. While the shares are in the plan or when they are eventually transferred to you, there is no CGT to be paid on the value of those shares.

Save-as-you-earn

This option allows you to save each month from accumulating tax-free savings over a three, five, or seven-year period. Your savings can either be withdrawn as cash or used to purchase shares of your employer’s company at a predetermined price at the beginning of the plan.

Company Share Option Scheme

You are given the option to purchase shares of the company in which you work at a predetermined future date at a predetermined price; this price cannot be less than the market value of the shares at the time the option is given.

Enterprise Management Incentive

You have the option of purchasing shares in the company at a predetermined price in the future. Your income tax bill will be higher if you receive an option to purchase stock at a lower price than its market value at the time you receive it.

Simplifying Equity Management with Taxd!

If you're considering selling a property or other assets, it's advisable to seek professional advice on how to minimise any unnecessary Capital Gains Tax bills on Taxd!

Take the help of our Capital Gains Tax UK Calculator once you’ve gained profit from selling your assets.

FAQs

1. What is a capital gain?

A capital gain is the profit you make when you sell an asset that has increased in value. It's essentially the difference between the selling price and the original purchase price of the asset.

2. How much is the Capital Gains Tax allowance?

The Capital Gains Tax allowance in the UK is currently £3000. This means that you don't have to pay any Capital Gains Tax on any profit you make that is less than £3000.

3. What happens if I don't pay the Capital Gains Tax?

In the UK, it is illegal to avoid paying the Capital Gains Tax. If you fail to declare Capital Gains Tax, HMRC will issue a warning. If you fail to pay it within the 30-day deadline, you could face a penalty and be liable for any interest owed on the payment.

4. What assets do I need to pay the Capital Gains Tax for when I sell it?

You will need to pay the Capital Gains Tax in UK on property that you gain a profit from for more than £3000 when you sell it. The assets can be anything from property, shares, cryptocurrency, jewellery, or vintage cars!