Capital Gains Tax (CGT) generally arises when you are taxed on the profits you make from selling, giving away or disposing of assets that have increased in value. These chargeable assets can include:
- Property that isn’t your main home
- Personal possessions worth £6,000 or more (apart from your car).
- Shares that are not in an ISA or PEP
- Your main home (if you have let it out, used it for business or it’s very large)
- Business Assets (land, buildings, machinery, trademarks etc)
Capital gains can also be attributed to a beneficiary on receipt of distributions from overseas trusts.
When do you have to pay Capital Gains Tax?
You only have to pay Capital Gains Tax if your total gains exceed the tax-free allowance (annual exempt amount). The tax-free allowance is £12,000 and the current rate of Capital Gains Tax is 28% on residential property and carried interest and 20% on other assets. The capital gains are reported in your UK Tax Return.
AEA limits can change yearly, so it’s important to keep this in mind.
Gains on certain assets are not chargeable to Capital Gains tax including:
- Betting, lottery or pools winnings
- Gains in ISAs or PEPs
- UK government gilts and Premium Bonds
There are also certain reliefs available that reduce chargeable gains or the rate applied and these include Principal Private Residence (PPR) relief on main homes and Entrepreneurs Relief on certain sales that reduce the rate of tax to 10%.
Capital Gains Tax if you are living abroad
Even if you are a non-resident for UK tax purposes, you will have to pay tax on gains you make on property and land in the UK (these gains are reported on a special non-resident return that must be filed within 30 days of completion).
For other assets such as UK company shares, you generally do not have to pay Capital Gains Tax unless you return to the country within 5 years of leaving.
Interaction with US taxes
US persons living in the UK will also be subject to US taxes on their worldwide capital gains. There are a number of differences between UK and US taxes on capital gains including:
- Short term gains (assets held less than one year) are charged to income tax rates up to 37%
- Long term gains are charged at special rates from 0-20%
- A gift does not result in a deemed disposal as it does in the UK
- The main home exemption is limited to $500,000 of gain for a couple filing jointly
- There is no annual excluded amount
- Gains in ISAs are still taxable
The UK/US Double Tax Agreement helps determine which country has the primary taxing right on gains to avoid double taxation.
How can we help?
If you are planning to sell personal or business assets, we can help advise the best approach when it comes to taxes. We’re ideally placed to review your personal tax affairs to ensure you meet all your compliance requirements as well as recommend ways to reduce your liability to taxes.
When you come onboard with us, you’ll be partnered with one of our qualified consultants who will be able to assist with all your tax matters