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Capital Gains Tax advice

How Capital Gains are Taxed?

Whenever you sell or dispose of something or an asset that has its value increased, there levies a tax on the profit which is known as capital gains tax. The gain you make is taxed and not the amount you get. Let’s examine on how to calculate your capital gains tax bill and whether you really require to pay any tax at all.

Will I pay Capital Gains Tax?

If you’ve considered to sell an asset such as a painting, shares, maybe a home and made a profit, you might be having capital gains tax bill to pay. Here, we will explain on the methodology on how much you’ll end up paying and whether or not you’ll have any tax for paying at all.

Calculating CGT: step by step approach

Four steps are required for you to take to work out your capital gains tax bill.

Step 1
Begin with the final value. This is normally the sale proceeds or the market value on giving the item away.

Step 2
Subtract the initial value. This is normally the price you paid or the market value when you were provided the item. Anything you own since before 31 March 1982, it is the market value on that date.

Step 3
Subtract any allowable expenses. These consist of the costs of buying and selling such as dealing costs, advertising and stamp duty. They also consist of the cost of enhancing the asset, subject to the enhancement indicated in the value of an item.

Step 4
If there is a loss, you can obtain tax relief by forming it against gains on other assets either this year or in future.
Further, add together all your gains for the year and subtract any losses and your annual tax-free allowance.
The allowance for 2018-19 is £11,700. It was £11,300 in 2017-18.
For basic taxpayers capital gains is charged at 10% and 18% for higher-rate taxpayers for most assets.
But higher rates are incurred on capital gains made on property sales—18% for basic-rate taxpayers and 28% for higher-rate taxpayers.

Calculating CGT: With an example

Example Capital Gains tax calculation for 2018-19

Calculation Amount
Capital gain £20,000
Losses £1,400
Annual allowance £11,700
Taxable gain = £20,000 – £1,400 – £11,700 £6,900 taxable gain
CGT rate 10% tax rate
Capital gains tax payable – £6,900 x 10% £690 payable

Example calculation of losses for 2018-19

Calculation Amount
Gain from  second home sale £50,000
Loss on shares £10,000
Net gains for year are £50,000 – £10,000 £40,000 net gains
Losses carried forward from previous years £65,000
Deduct tax free allowance from the net gain £40,000 – £11,700 = £28,300
Remaining Tax free losses (£65,000 – £28,300) £36,700 left to carry forward
Capital gains tax to pay £0

Tax Relief for Losses

Whenever you sell or give away your possessions, you obtain tax relief for genuine losses.

First, losses get subtracted from any gains you make in the same year. You have to subtract all these losses even if this is below your tax-free allowance.

Still if there are some remaining losses, you can carry them forward.

But if there are still some gains left, you next subtract any losses brought forward from previous years, but only so much as is required to minimize your gains to the level of your tax-free allowance.

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