Rates of UK Capital Gains Tax
The rate of capital gains tax in the UK depends on the individual’s income tax band, and it is currently set at 10% for basic rate taxpayers and 20% for higher rate taxpayers. For residential property sales, the rates are higher at 18% and 28% respectively. For individuals who are subject to the higher rate of capital gains tax, the rate of tax on gains from residential property is 28%. It is important to note that there are different rates for gains made on assets owned by companies.
Exemptions and Allowances
There are a number of exemptions and allowances that can reduce the amount of capital gains tax payable, and it is important to consider these when calculating your tax liability. The main exemptions include:– The annual exempt amount for the tax year 2023-24 is £6,000 (12,300 in 2022-23) for individuals and £3,000 for trusts. – The exemption for gains made on the sale of a main residence, known as principal private residence relief (PPR). This exemption applies to the sale of a property that has been used as the individual’s main residence for the entire period of ownership. – The exemption for gains made on the sale of certain assets, such as cars and personal possessions, where the sale price is less than £6,000.
There are also a number of reliefs and allowances available, including:
– Entrepreneurs’ relief, which allows individuals to pay a reduced rate of 10% on the sale of a business or shares in a trading company.– Gift holdover relief, which allows individuals to defer the payment of capital gains tax when gifting assets to others. – Annual tax-free savings allowance of £20,000 for individuals and £10,000 for children.
John is a UK resident who sold a property for £500,000 that he had purchased for £400,000 five years ago. He is a higher rate taxpayer and has no other capital gains in the current tax year. John’s capital gains tax liability would be calculated as follows:– Total gain = £100,000 (£500,000 – £400,000) – Annual exempt amount = £12,300 – Taxable gain = £87,700 (£100,000 – £12,300) – Capital gains tax liability = £17,540 (20% of £87,700) However, if John had used the property as his main residence for the entire period of ownership, he would have been eligible for principal private residence relief, which would have exempted the gain from capital gains tax.
Capital gains tax can be a complex area, and it is important to seek professional advice to ensure that you are paying the correct amount of tax. Harkia Accountants specialises in providing