UK CAPITAL GAINS TAX

When will I pay capital gains tax?

If you dispose of an asset for more than you bought it for, then you have made a gain. Generally, if that gain is more than the capital gains annual allowance (currently £3,000 as of 6th Apr 2024), then you will be subject to UK capital gains tax.

Asset – An asset is an item of property. This could be a painting, a house, land, shares, antiques etc. However, there are a few exceptions:

– Personal possessions (or “Chattels”) which are sold for less than £6,000 are exempt.
– The sale of a car (unless it is considered as a collectible or antique) is also exempt from capital gains tax, regardless of the sale price.
– A gain made on the sale of your main home (that you have occupied for the entire period of ownership) is tax-free
– The sale of shares held within an ISA will not be subject to capital gains tax.

Dispose – you are deemed to have disposed of an asset if you sell it, give it away as a gift, transfer it to someone else, swap it or if you are compensated for loss of asset. Generally, gifts to your spouse, civil partner or to a charity will not be subject to tax. If you are contemplating making a gift you should seek separate advice as this is a complex area.

How are capital gains calculated?

Depending on the asset being disposed of, there are various conditions and calculations that are used to arrive at your chargeable gain. In its simplest form:

‘Proceeds of sale’ minus ‘acquisition cost’ equals ‘chargeable gain’

The chargeable gain is then subject to CGT at the applicable rate, depending on your income bracket and the type of asset.

For the 2024/25 tax year, gains will be subject to two different tax rates as part of a transition outlined in the Autumn 2024 Budget. This transition will shift from the previous rates to the new ones starting from 30th October 2024.

• For gains made between 6th April 2024 and 29th October 2024 – Basic rate taxpayers will pay 10%, and higher rate taxpayers will pay 20%.
• For gains made from 30th October 2024 onwards, these rates will increase to 18% for basic rate taxpayers and 24% for higher rate taxpayers.

Higher rate taxpayers will pay tax on Carried Interest at an increased rate of 32% (up from 28% following the Autumn Budget).

Shares
The sale of shares is not quite as straightforward as the sale of other assets. The complications lie with determining the cost of the shares that were sold. To avoid taxpayers gaining an advantage by selling and rebuying shares to utilise their capital gains allowances, HMRC introduced the “share matching rules”. When selling shares, a taxpayer is deemed to have sold shares in the following order:

1. Shares acquired on the same day will be deemed to have been sold first.

2. Any shares acquired in the following 30 days are then next disposed of

For example, you hold 10,000 Company B shares and you sell 5,000 shares today, then in two weeks’ time you purchase 5,000 more Company B shares. The 5,000 shares purchased will be deemed to have been sold for the purposes of calculating capital gains

3. Any remaining shares are then pooled together (this is known as the Section 104 pool).

The costs of all the previously acquired shares are added to together to produce an average cost.

Residential property
The most notable difference to the calculation of gains on the sale of residential property is the ability to deduct the cost of any capital improvements. E.g. if you built an extension to your property, you can include the cost of this as part of the cost basis of your property. You can also deduct the costs associated with the purchase and sale such as agent fees and solicitor’s fees.

E.g.                 Proceeds                                                                  £360,000
                        Less: Agent and Solicitors Fees                              (£10,000)
                        Less: Cost of property (including stamp duty)        (£120,000)
                        Less: Cost of capital improvements                        (£40,000)

                        Gain                                                                        £190,000

From 2024/25, the capital gains tax rates on residential property gains now align with the new general CGT rates, with the basic rate remaining at 18% and the higher rate now at 24% (reduced from 28%).

Private Residence Relief (PPR) allows you to claim tax relief on up to 100% of the gain on the sale of your main home. Please see our relevant article for more details on this – PPR Relief

Individuals who sell a UK property must file a Capital Gains Tax Return within 60 days of conveyance. Please see here for more information – Capital Gains Tax on UK Residential Property.

Foreign assets
There are a few complications with the calculation of capital gains on the sale of foreign assets. The proceeds of sale and purchase price should be converted to sterling at the exchange rates on their respective dates

e.g. you paid $5,000 for US share in 2003 when the USD/GBP exchange rate was 1.6 and then sold the shares for $5,000 in 2018 when then exchange rate was 1.2.

Proceeds                              $5,000 @ 1.2 =                             £4,167
Less: Purchase price           $5,000 @ 1.6 =                             (£3,125)

Gain                                                                                           £1,042

Even though there was no gain or loss in US dollars there has been a gain in GBP and this is the chargeable gain that you may be required to pay tax on.

There are certain advantages available to individuals who are ‘not domiciled’ in the UK for 2024/25. This would be the last tax year in which they may claim the “remittance basis”, whereby they are not required to report their unremitted foreign income and gains in the UK (subject to a number of conditions) – Please note these rules have changed significantly for the 2025/26 tax year. For more information, see our article on the New FIG tax regime.

We strongly recommend speaking to us directly if you think that this affects you

 

What if I sold an asset for less than I paid for it?

In most cases this will be considered as a loss. This loss is first used to reduce your chargeable gains in the same tax year. If your loss exceeds you gain, then you can carry the net loss forward to offset future capital gains.

It is important to note that there is a restriction to the loss allowed on the sale of personal possessions that are sold for less than £6,000. Also, the loss made on the sale of your main home is not an allowable loss and cannot be used to offset capital gains or be carried forward to a future tax year.

Please be aware that this is only a basic overview of UK capital gains tax. This article should not be taken as tax advice as there are many unconsidered factors that could affect individuals separately. We strongly recommend that you contact us directly for more information.