Capital Gains Tax – Using your annual exempt amount for Capital Gains Tax purposes 2021/22creative77
Before we go into this, it is worth explaining what Capital Gains Tax is and when you do and don’t need to pay it.
What is it?
Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. The example HMRC give is:
“You bought a painting for £5,000 and sold it later for £25,000. This means you made a gain of £20,000 (£25,000 minus £5,000).”
Disposing of an asset includes:
- selling it
- giving it away as a gift, or transferring it to someone else
- swapping it for something else
- getting compensation for it – like an insurance payout if it’s been lost or destroyed.
What is included?
You pay Capital Gains Tax on the gain when you sell (or ‘dispose of’):
- most personal possessions worth £6,000 or more, apart from your car
- property that’s not your main home
- your main home if you’ve let it out, used it for business or it’s very large
- shares that are not in an ISA or PEP
- business assets
These are all known as ‘chargeable assets’.
Depending on the asset, you may be able to reduce any tax you pay by claiming a relief.
If you dispose of an asset you jointly own with someone else, you have to pay Capital Gains Tax on your share of the gain.
When do you/don’t you need to pay it?
- You only have to pay Capital Gains Tax on your total gains above an annual tax-free allowance.
- You do not usually pay tax on gifts to your husband, wife, civil partner or a charity.
You do not pay Capital Gains Tax on certain assets, including any gains you make from:
- ISAs or PEPs
- UK government gilts and Premium Bonds
- betting, lottery or pools winnings
- When someone dies.
When you inherit an asset, Inheritance Tax is usually paid by the estate of the person who’s died. You only have to work out if you need to pay Capital Gains Tax if you later dispose of the asset. It’s the gain you make that’s taxed, not the amount of money you receive.
(Some information has been taken from the HMRC website)
What is your annual exempt amount?
All individuals are entitled to an annual exempt amount for capital gains tax purposes.
Net gains (which are chargeable gains, less allowable losses) for the tax year are free of capital gain tax to the extent that they are covered by the annual exempt amount.
For 2021/22, the annual exempt amount is set at £12,300.
Use it or lose it
As with the personal allowance for income tax purposes, the capital gains tax annual exempt amount is lost if it is not fully used in the tax year – it is not possible to carry forward any unused part of the 2021/22 annual exempt amount to 2022/23.
As the end of the tax year approaches, now is the time to review gains and losses in the tax year, and planned disposals, to assess whether it is beneficial to make further disposals in 2021/22.
Not sure if this is something you should be considering?
Please give us a call – the purpose of this newsletter is to cover topical issues and raise awareness of various different ways the government manages tax and payments. We are happy to advise and discuss further anything which you think you would like details on, just give us a call on 01472 287387.