Capital gains tax is a fairly simple tax to understand. However, it can be complicated when you get into the details. It is therefore important to understand it fully so you always only pay what you should be paying and nothing more.

Overview of Capital Gains Tax (CGT)

In its simplest form, capital gains tax is a tax you pay when you sell something and make a profit. However, it is limited to things of value. You only pay tax when the item you sell is worth £6,000 or more, excluding your car.

The amount of tax you pay depends on how much profit you make when you sell the item. However, it gets more complex than this.

What Do You Pay CGT  On?

You will pay CGT when you sell a property, but this does not apply to your main home. So, if you have a second property and you make a profit, you will pay CGT on this.

You will also pay the tax on other items of value. One of the most common is jewellery, and you will also pay CGT when you sell antiques, gold, silver and other valuable collectable items. If they are valued at £6,000 or more, any profit you make is taxable.

Tax is also due on shares. When you have shares and you sell them at a profit, CGT will apply.

What Are the Tax Rates?

The tax rates are different depending on what you sell. For a property, there are two rates;

– 18% for basic taxpayers

– 28% for higher rate taxpayers

For other items of value, the tax rates are lower:

– 10% for basic taxpayers

– 20% for higher rate taxpayers

Quick Capital Gains Tax Calculation

Working out the amount of tax to pay can be complicated, and this is where an accountant can help. It is all to do with the profit that you make, so you need to work this out first.

Let’s say you sell an antique for £20,000 that you bought for £12,000, and you have made a profit of £8,000. This is the amount that is taxable. But you also have an annual tax-free allowance of £11,700 (2018 to 2019), so if this is the only profit you make all year, you would not pay any tax.

If you sold another item in the same year and made £5,000 profit, your total profit would be £13,000, so the tax would apply to anything over £11,700.

But it’s not always this simple. There are other deductions that you might be able to make, which you can read about here. For example, when selling a property you can deduct stamp duty and legal fees. Additionally, you might be able to transfer assets to your spouse as each individual is allocated a tax allowance.

Ask An Accountant

While capital gains tax is a fairly simple idea, it can get confusing depending on what you are selling and how much tax you owe. For that reason, it’s always a good idea to get help from an accountant so you can be sure you are not paying more than you should be.