Capital Gains Tax
CGT
Capital gains tax and individuals
Reviewing when and how to declare CGT, different rates and annual exempt amounts. Santhie Goundar explains
At a glance
Individuals’ CGT liabilities depend heavily on their specific circumstances
Annual exemption rates are being tapered down over the upcoming tax years
Capital gains tax (CGT) is levied on UK assets, such as shares and property, where a capital gain has been made on disposal (i.e. on sale, or upon transfer of the asset from one person to another). It is a tax that is paid by individuals disposing of an asset as any capital gains made by companies are chargeable to corporation tax rather than CGT. CGT has increasingly come into focus in recent years because of rising revenues.
The Office for Budget Responsibility predicts that in 2023/24, CGT will raise £17.8bn, which represents 1.7% of all tax receipts and 0.7% of national income – and is equivalent to £620 per household. While this is slightly down from the amount of CGT raised in 2022/23, which was £18.1bn, yields have risen sharply over the past few years — just five years ago, the CGT take for 2018/19 was £9.2bn. The government raised £11.1bn from CGT in 2020/21, which jumped to £15.3bn in 2021/22.
Some of this increase has resulted from rising asset values, particularly UK property, from individuals selling residential properties that aren’t their main residence. But there are many other factors contributing to CGT revenues almost doubling in just five years; one factor is the slashing of the tax-free thresholds, allowances and reliefs.
As one example, principal private residence relief, which automatically allows a UK-resident homeowner to sell their main residence free of CGT, used to be available for up to 36 months after the homeowner moved out of their UK home — this exemption period was reduced to 18 months from 6 April 2014, and then to nine months from 6 April 2020.
The rise of cryptoassets and their increasing values since before the 2020 pandemic could also be another factor, especially after HMRC confirmed that any gains individuals made on cryptoassets they owned were capital gains, and therefore subject to CGT. This means that, like other assets subject to CGT, any losses made on crypto are capital losses — and these capital losses can be deducted from capital gains.
CGT RATES
Capital Gains Tax rates
Different CGT rates apply depending on whether the individual making the capital gain is a basic- or higher-rate taxpayer, and whether residential property is being sold or not.
If an individual pays the higher rate or additional rate of income tax, they will pay on their capital gains:
- 20% CGT on any gains from other chargeable assets; and
- 28% CGT on gains from residential sales.
- For basic rate taxpayers, the rate of CGT paid depends on the size of the gain(s), their taxable income and, again, whether the gain is from residential property or other assets. The starting rates are:
- 10% CGT on any gains from other chargeable assets; and
- 18% CGT on gains from residential sales.
- For a basic rate taxpayer to work out how much CGT they owe, HMRC says:
- work out the individual’s taxable income for the year;
- work out the total taxable gains the individual made during the tax year, minus the tax-free CGT allowance;
- add this to the taxable income. If this amount is within the basic income tax band, the individual will pay CGT at a rate of 10% on the gains (or 18% on residential property). The individual will pay CGT at 20% (or 28% on residential property) above the basic tax rate.
Annual exempt amount: the amount of CGT-free gains
All individuals that are liable to CGT get an annual tax-free allowance, known as the annual exempt amount every tax year, unless the individual is non-domiciled in the UK and has claimed the remittance basis of taxation on foreign income/gains.
CGT is only paid if the total capital gains an individual makes during a tax year, after deducting any capital losses and applying any reliefs, are above the annual exempt amount. According to HMRC, there’s one annual exempt amount for most individuals who live in the UK, as well as executors or personal representatives of a deceased person’s estate, and trustees for disabled people.
The annual exempt amount for the 2022/23 tax year was £12,300, and was reduced to £6,000 for the 2023/24 tax year. It will be reduced again to £3,000 for 2024/25. This means that, from 6 April 2024 onwards, the annual exempt allowance is being halved. A disposal made on 5 April 2024 with a total capital gain of £6,000 would be tax-free as it would be fully covered by the CGT annual exempt allowance. However, if the disposal was made the next day, it would fall in the 2024/25 tax year — and therefore only £3,000 of the gain would be tax-free and covered by the annual exempt amount, meaning CGT would be charged on the remaining £3,000.
How to declare and pay CGT
HMRC’s rules for reporting and paying CGT depend on the chargeable asset being disposed of, and when it was disposed of. If an individual sold a residential property in the UK (that isn’t a principal private residence) with a completion date on or after 27 October 2021, they must report this sale to HMRC and pay the CGT due within 60 days.
If an individual sold a residential property in the UK (that isn’t a principal private residence) with a completion date between 6 April 2020 and 26 October 2021, the sale and CGT must be reported and paid within 30 days. The same HMRC online service linked to above can be used for this purpose. Individuals should report other capital gains in the tax year after they sold or disposed of an asset if they use a self-assessment tax return; the capital gain can be reported on the tax return and filed and paid by normal self-assessment deadlines. If the individual is eligible, they may be able to use the ‘real-time’ CGT service to report by 31 December in the tax year after the sale.
In all cases, interest and penalties apply for late filing and CGT paid. Late payment interest for taxes is set at a rate of 2.5% above Bank of England base rate.
Exemptions and qualifications
The sale of a UK individual’s main residence in the UK is tax-free due to principal private residence relief, and does not need to be declared to HMRC for CGT purposes.
If the total capital gains an individual has made during the tax year, after deducting any capital losses and applying any reliefs, are equal to or below the annual exempt amount, then these gains do not need to be declared to HMRC.
For example, shares purchased on the stock market in 2023/24 for £10,000 and sold later in the tax year for £15,000 do not need to be reported, as the total capital gain was £5,000 (less than the annual exempt amount for 2023/24 of £6,000). If the sales proceeds of £15,000 were then reinvested in other stocks during 2023/24 and these stocks were also sold later in the same tax year for £18,000, then the gains would need to be reported as the total gains in the tax year were over £6,000 (i.e. a gain of £5,000 followed by a gain of £3,000 = £8,000 total).
Reporting threshold
The exception to this rule is if sales proceeds on chargeable assets exceed a the annual reporting threshold in the tax year, even if the capital gain(s) is less than the annual exempt amount. The CGT annual reporting threshold for the 2022/23 tax year was £49,200, and rose to £50,000 for 2023/24.
This means, for example, if land or property in the UK was bought for £49,000 by someone who already owns and lives in a separate property as their main residence, and this person then sold this land/property during 2023/24 for £50,001, then this needs to be reported to HMRC — even though the gain is under the annual exempt amount of £6,000. Similarly, someone who purchased cryptoassets for £52,000 and sold the same cryptoassets in 2023/24 for £50,500 would need to report this to HMRC.
CGT