If you’ve been following us on Linked In over the last week or so, you’ll have seen a short video from our Accounting M.D., Neil Ormesher, discussing the new rules that apply. So, today, we wanted to provide a little more information into what Capital Gains Tax is, what’s changed, and how it might apply to you.
What is Capital Gains Tax & does it apply to me?First things first, it is a tax on any profits you make when you sell – or dispose of – an asset that’s increased in value. Fairly straightforward, right? Well, as you’d imagine when it comes to HMRC’s rules, there are certain nuances and caveats to be aware of.
In terms of the kind of ‘assets’ this tax applies to, it ranges from a piece of art or memorabilia to shares you may own in a particular company. Depending on your circumstances, you might also be required to pay Capital Gains Tax when selling a property that is not your home or permanent residence. So, this includes things like:
- Buy-to-let properties
- Business premises
- Holiday homes
- Property you’ve inherited
So, if it applies to you, you’ll need to work out the amount of money you’ve gained through sale or disposal of the item/s in question to ascertain whether or not you need to pay Capital Gains Tax.
Capital Gains Tax DOES NOT apply in the following circumstances:
- The property is your main or permanent residence and this has been the case for the entire period of ownership.
- You made a loss on the property.
- The amount of money you’ve made on the property is within your Annual Exempt Amount.
- Your property was sold or gifted to your spouse, civil partner, or a charity. Read more, here.
What are the 2020 changes?Since April, certain rules surrounding Capital Gains Tax in the UK have changed.
One key difference is, you now have a maximum of 30 days to report and pay the tax to HMRC on the sale or disposal of certain residential properties in the UK. As above, this excludes those for whom the property they’re selling is their main residence. So, this will predominantly affect buy-to-let landlords and those with second homes.
In addition, anyone who makes a ‘taxable capital gain’ from the sale or disposal of a UK residential property now has to pay any tax owed within 30 days of completion. Previously, the deadline was between 9 and 18 months.
So, if Capital Gains Tax applies to a property you’re disposing of, you must (within 30 days):
- Calculate any capital gains you’ve made
- Report that amount to HMRC
- Make your Capital Gains Tax payment
Furthermore, you should include on your tax return the means by which you worked out your Capital Gains Tax, as well as whether you lost any money on any such investment.
There’s more information on how to report and pay Capital Gains Tax here. The process is fairly straightforward, though if you have the right accountant they should always be able to assist you.
Does Capital Gains Tax apply if I’m selling a business?If you’re a sole trader or are in a business partnership and you make a profit on the sale or disposal of (all or part of) your business (or business asset), you may have to pay Capital Gains Tax.
According to Gov.UK, the ‘business assets you might need to pay tax on’ include:
- Fixtures and fittings
- Land and buildings
- Registered trademarks
As it applies to individuals and representatives, it DOES NOT apply to Limited Companies. Instead, they pay Corporation Tax on the profits they make from asset sales.
Hopefully that clears a few things up about this complicated type of taxation. When it comes to tax and your business, though, it’s always beneficial to seek specialist advice that’s personal to you and your business. At Danbro, our dedicated team are always on hand to provide the level of support and guidance you need. Contact us today or email your Personal Accountant direct.
Sam Wright is Danbro’s Marketing Manager. He produces regular content and feature articles on our digital and non-digital channels – and social platforms – for the Danbro Group and its subsidiaries, as well as having responsibility for the Company’s internal and external communications.
His background is in Journalism and Creative Writing, having previously contributed to publications such as The Daily Post, The Lancashire Evening Post, and The Blackpool Gazette.
He is a keen swimmer and avid Manchester United fan (but don’t hold that against him), and he lives in Lancashire with his wife, Sarah.