We know learning about CGT isn’t the most exciting use of your time. That’s why we learn the ins and outs: so you don’t have to.
But, if you want to know more about CGT, here’s a more detailed overview:
When you dispose of an asset that’s increased in value, you may have to pay CGT (Capital Gains Tax) on the profit. From the 6th April 2023, HMRC requires you to file & pay your CGT within just 60 days.
“Disposing an asset” can mean various things, but we will be focusing on managing your CGT file & pay process only if you’ve sold a property. If you haven’t sold a property and are unsure of what other circumstances would make you liable to pay CGT, find out on the government website here: https://www.gov.uk/capital-gains-tax
One of the factors used in calculating CGT is your income. Currently, there are 5 rates that CGT is charged at depending on income and what asset is being disposed of. Since we are focusing on calculating CGT for you if you’ve sold a property, the 18 and 28% are the most relevant rates:
It is also important to note that these rates only apply to the taxable gain, NOT the total gain. The Annual Exempt Amount allows a certain portion of your gain to be taken free of tax. For this 2023/24 tax year, the Annual Exemption is £6,000. This will be reduced to £3,000 on 6th April 2024.
With only 60 days from the point of sale to file & pay your CGT, you can never be too careful that all your documents and calculations are accurate to avoid penalties. There are currently 3 types: latesection penalties, inaccuracy penalties and failure to notify penalties.
If a return is filed MORE THAN 60 DAYS from the point of sale, there is a late penalty of £100. If a return is filed MORE THAN 6 MONTHS from the point of sale, there is a late penalty of £300 OR 5% of the outstanding tax, whichever is higher. If a return is filed MORE THAN 12 MONTHS from the point of sale, there is also a late penalty of £300 or 5% of the outstanding tax, whichever is higher.
If a penalty arises DUE TO LACK OF REASONABLE CARE, the penalty will be between 0 and 30% of the extra tax due. If the ERROR IS DELIBERATE, the penalty will be between 20 and 70% of the extra tax due. If the ERROR IS DELIBERATE AND CONCEALED, the penalty will be between 30 and 100% of the extra tax due.
If you do not inform HMRC when changes happen that affect your liability to tax, there could be a penalty. For example, selling an asset that’s made a capital gain and not filing & paying it could result in a penalty. This penalty is calculated based on the amount of tax that’s been unpaid as a result of the failure to notify.