Capital Gains Tax is a government tax on profits made from certain assets over an annual allowance, which has changed for the 2023/24 tax year and beyond . It is not automatically deducted, and higher- and additional-rate taxpayers are charged a higher rate, so it is vital to understand and declare your position.
Not doing so could land you with costly fines. On the other hand, knowing your liabilities and maximising allowances and other reliefs will help to preserve more of your wealth. It is a complex topic but this comprehensive guide to Capital Gains Tax for high income earners gives a clear overview.
Below, we cover chargeable assets, the current higher- and additional-rate taxpayer Capital Gains Tax rate, ways to reduce your liability and more. Our financial planning advisers can provide further guidance bespoke to your situation and goals, so .
Capital Gains Tax is a type of government tax charged on profits or ‘gains’ that you make from disposing of certain assets. Disposing can mean selling, gifting, exchanging or other methods of disposal for gain, such as an insurance payout if an asset is lost, stolen or destroyed.
Gains are charged at different rates based on your taxpayer bracket. You only pay tax on profits above an annual allowance for that tax year, however. It is charged on the gain that you make from disposing of an asset, not the total amount that you receive.
For example, if you bought a piece of art for £5,000 and sold it later for £15,000, you would pay tax on the gain of £10,000.
Another important point to note is that Capital Gains Tax is not automatically collected like income tax is. Instead, you must self-report it to HMRC; failing to do so or providing inaccurate information could lead to a fine worth more than your original liability.
Typical ‘chargeable assets’ include but are not limited to:
As a UK resident, you may need to pay tax on such assets located anywhere in the world. Some assets are tax-free, though, including gains made from:
You do not pay Capital Gains Tax when inheriting an asset (though you may do if you go on to dispose of it and it increases in value). Gifts to your spouse, civil partner or a charity are usually tax-free, too.
Capital Gains Tax is charged at different rates for basic- and higher- or additional-rate taxpayers. There are separate rates for different chargeable assets, too, as follows:
Like other forms of tax, every individual has an annual allowance on which Capital Gains Tax does not apply. This is officially known as the annual exempt amount.
For the 2023/24 tax year, the allowance is set at £6,000 for individuals, meaning that you can earn up to £6,000 in tax-free profits on relevant assets. This was recently reduced by the government, however, having stood at £12,300 for the 2022/23 tax year. It will be cut further to £3,000 from April 2024.
If you have joint ownership of an asset with another person, you can use both of your allowances, doubling the amount of tax-free profit that you can make on it. And if you are married or in a civil partnership, you can exchange assets tax-free. Note that, if you later sell them, you will be charged on the gain made from your joint ownership, not after transferral.
Be aware that you cannot carry forward any unused allowance into the next tax year, either, so you must use it or lose it. Our specialist advisers can appraise your position and ensure that you take advantage of available allowances in a timely manner.
Capital gains are taxed differently to your regular income and come with a separate annual tax-free allowance, additional to your personal allowance for income.
You calculate total taxable gains by following this three-step process:
You then calculate the rate of Capital Gains Tax for which you are liable — basic or higher — by adding your taxable capital gains to your taxable income.
Note that, if you are a basic-rate income taxpayer but capital gains push you into the higher- or additional-rate brackets, you will be liable for the higher Capital Gains Tax rate. The higher rate only applies on the amount that takes you over the relevant limit, though.
Calculating your Capital Gains Tax liability can be a complex, time-consuming task, particularly if you have lots of taxable assets. If neglected, you may incur financial penalties on top of added stress. Our qualified advisers are on hand to assess all your tax liabilities and help you plan around the various allowances.
Firstly, it is important to know that Capital Gains Tax cannot and should not be avoided if you are liable. Not declaring what you legally owe is an offence. However, there are several reliefs and conditions that can potentially reduce how much Capital Gains Tax you must pay.
Your options may include:
Our expert financial advisers can help you understand all available opportunities for tax relief, including those beyond Capital Gains Tax.
If you complete a tax return, you can report most Capital Gains Tax this way before the regular deadline. There are exceptions, however; you must declare gains from any non-primary residential properties within 60 days of sale.
You can use the government’s online Capital Gains Tax reporting service to report and pay what you owe immediately. If using this method, you must submit payment by December 31st in the year after making the gains.
We hope our guide to Capital Gains Tax has clarified the key points on the topic. For a more personalised overview, our experts are on hand to review and optimise your current position. Here are some of the reasons to get in touch for a free, no-obligation consultation:
Contact us today to understand, comply with and potentially reduce your Capital Gains Tax liabilities.
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