Capital Gains Tax
Capital Gains Tax is calculated when you sell shares, a second property, business assets, or any personal items exceeding £6,000 excluding cars; if you own two homes, only one will be classed as your main residence and this is typically where you spend most of your time.
The sale date determines the Tax Return year that the transaction needs to be entered on. If the sales happened between 6th April 2018 and 5th April 2019 the information will go on the 2018/19 Tax Return. Transactions after this date and up to the 5th April 2020 will need to be saved for the 2019/20 submission which can be done from April 2020.You will only be taxed on profit, or gain, you make arising from the sale; the sale of the item less the purchase price. You will also have a set amount of gains that will not be taxed. For the 2018-19 tax year, this amount is £11,700 and this increases to £12,000 in the 2019-20 tax year. If your gains, are below this amount then you do not need to declare them to HMRC as there would be no capital gains tax to pay.
Capital gains tax is calculated depending on what type of asset is sold, and which band of tax your capital gain falls in to. If you fall into the basic tax band, you’ll pay 10% on your gains, or 18% for sale of residential property. Any amount above this basic tax rate will be paid at 20% for gain, or 28% on residential property.
If you are selling shares you may have a portfolio with an investment company that keeps a track of dividends you receive, shares that are purchased and shares that are sold. These portfolios are excellent evidence in providing you with the required information for your tax return.
The sale of a second property may be subject to relief which would reduce the profit for capital gains tax. Any costs involved in the sale, such as solicitor fees, or improvements made to the house during ownership can be deducted from the profit. A landlord who used the property as main residence for a period can claim Private Residence Relief (PRR). The number of months spent in the property, plus another 18 months, are used against the total number of months the property was owned.
For example, if you lived in a property from March 2009, moved out into a new main residence in March 2015 and sold the original property in March 2019, you would have 120 months of ownership, with (6 years x 12) 72 months being the period of time you lived there. Add 18 months brings this total to 90.
90 divided by 120 is the amount of relief that can be claimed against the gains.
A landlord can claim lettings relief on top of Private Residence Relief. This amount is the lesser one of three things: £40,000, or the amount of PRR already calculated, or the amount of chargeable gain made once the PRR has been deducted from the gain.With Making Tax Digital coming into effect, those individuals registered for the quarterly report service and send in details of their capital gain to calculate an estimate of the tax that will be due, rather than waiting until the tax return is prepared for the final figure.
Capital Gains Tax, personal tax, tax return, self-assessment