What is capital gains tax?
If you intend to sell one of your assets in the near future, it may be worth first spending some time on tax planning. Here’s everything you need to know about capital gains tax, including how the system may change in 2021…
Capital gains tax is a type of tax paid on the ‘profit’ of selling an asset. This occurs if you sell something for more than you paid for it because its value has appreciated (increased).
For example, you could purchase an antique item for £5,000 and later sell it for £25,000. This means you made a gain (or profit) of £20,000.
You may also be subject to capital gains tax if you are gifting an expensive item (including selling items at less than market value).
Many assets may incur capital gains tax when they are sold, items that may be subject to capital gains tax include:
You don’t have to pay capital gains tax on the sale of all assets. Everyone has a tax-free allowance on capital gains. The allowance is:
You don’t need to pay tax on any profits below your personal allowance.
Additionally, certain assets are ‘tax-free’, which is to say they are never subject to capital gains tax. HMRC advises that individuals do not need to pay capital gains tax on profits from:
Although gifts can be subject to capital gains tax, an individual does not need to pay capital gains tax on any gifts to their spouse/partner, or any gifts to a charitable organisation.
In 2019-20, the rates for capital gains tax were as follows:
Basic rate taxpayers (income of £12,501 to £50,000)
Higher rate taxpayers (£50,001 to £150,000+)
It is possible that the rate of capital gains tax will increase for the 2021-22 tax year. However, no official announcement was made during the Chancellor’s Spring Budget (March 3rd) or on the new ‘Tax Day’ (March 23rd). As soon as we have any clearer details on a possible change to the capital gains tax rates, we will update you.