Capital Gains Tax (or CGT) is the name given to the tax you have to pay on any profit you have made when selling something. Typical assets that incur capital gains tax include businesses, shares and second properties.
Calculating what you need to pay however is not always straightforward. The amount you pay depends not only on the difference between what you paid for something and then what you sold it for but also how much you earn a year. Most people will pay either 10% or 20% on profits made above the yearly limit. The difference is determined by whether your earnings fall above or below the upper limit of the income tax basic rate band.
Currently, the amount you can profit from tax free annually is £11,300 for the year 2017/18. There are also ways you can avoid paying on amounts over this. The most popular include tax wrappers such as ISAs or pensions.
The maximum amount you can earn whilst remaining in the basic rate for 2017/18 is £33,500. To calculate your capital gains tax you must add your profit and earnings together after deducting the tax free allowance. Anything below £33,500 will incur a basic rate tax of normally 10% and anything above the higher rate of 20%.
If you have or are going to sell a second property, shares or even a business for a profit over your allowance you face paying capital gains tax. Second homes are taxed at a higher rate than other assets. The basic rate is calculated at 18% rather than 10% and the higher rate at 28% not 20%.
How Do You Pay Capital Gains Tax
Normally, you pay your Capital Gains Tax as part of your tax return. If you do not normally have to file a tax return however you can do it online through the Report Capital Gains Tax facility on the government’s website. It is important that you also report any loss you made through an investment to make sure you do not pay too much capital gains tax.
We manage many people’s capital gains tax bills and are experts at navigating the system with your best interests in mind.
SKP Accountancy can offer the latest advice and guidance on Capital Gain Tax; call 020 8468 1049 or e-mail email@example.com to find out more.