The capital gains tax (CGT) allowance for 2022-23 is £12,300, meaning you can make this much profit from an asset before you pay any tax this year.
If you own your assets with someone else, you can use both allowances, doubling the amount you can make before CGT is due. Married or people in a civil partnership can transfer their assets to each other without incurring CGT.
If you transfer any of your assets to your partner and sell the asset later, you’ll be taxed on the gain made during the period you owned it as a couple instead of since the asset was passed to your partner.
HOW TO AVOID CAPITAL GAINS TAX?
If you owe CGT contributions, you must pay them instead of trying to avoid them. Not paying them can land you into legal trouble, and you may have to pay more than you had to.
However, there are some exceptions where you can avoid CGT. With the right amount of financial advice, there are various reliefs and conditions under which you can reduce the amount of CGT.
TAX-FREE PROPERTIES
You are not supposed to pay tax on all capital gains. Here are some tax-free properties listed:
- CGT on cars: The sale or gifting of private cars.
- CGT on gifts to spouses & charity: Gifts between husband and wife or civil legal partners are tax-free, but the tax will be due if the new owner sells the item. Donations to charities are similar.
- CGT on property sales: The sale of your primary home. The sale of a buy-to-let or second home that was your primary residence within the last 18 months qualifies as tax-free property.
- CGT on personal possessions: Personal belongings, such as antiques, worth no more than £6,000. If you sell a set (say, a set of chairs), the £6,000 limit applies to the set as a whole, not to each item.
HOW TO PAY CAPITAL GAINS TAX?
Using a capital gains tax calculator, you must pay different rates depending on what you are selling. Here is the basic CGT formula:
| Asset Type | Basic rate band
(income < £50,270) |
Higher rate band
(income > £50,270) |
| Shares | 10% | 20% |
| Residential properties | 18% | 28% |
| Cryptocurrency | 10% | 20% |
| Other | 10% | 20% |
You only have to pay Capital Gains Tax on profits over £12,300 when you sell an asset. Anything less than that is exempt from taxation. When you earn more than £12,300 in a tax year, you have taxable income that you must declare to HMRC and file a tax return for.
Ensure you do this by the 31st of January of the tax year following your profit.
If you have reported your capital gains Self Assessment tax return, you will be required to pay your tax as a part of your Self Assessment tax bill. You can pay the tax online using HMRC online services by debit or credit card.
CONCLUSION
In conclusion, you pay tax on capital gains when profits from an asset exceed the capital gains tax threshold of £12,300. Furthermore, some tax exemptions exist on private cars, personal possessions, property sales, etc.