Capital Gains Tax is a tax on the profit made when selling or ‘disposing of’ an asset that has increased in value. For example, you purchase an antique. You then subsequently sell the antique and pay Capital Gains Tax on the increase in value alone, not the original purchase cost.
Bear in mind that Capital Gains Tax only applies to those who are earning more than their Personal Allowance limit of £12,500 (as of 2019/20). You won’t be required to pay this tax should your total income (including the capital gain) fall within your Personal Allowance in any one tax year.
We understand that this subject can be complicated, especially when ascertaining the exact Capital Gains Tax rate on your personal possessions. So, to help, we’ve created the below guide to settle this confusing matter once and for all.
What do you have to pay Capital Gains Tax on?
Any ‘chargeable assets’ you may own – specifically, personal possessions (apart from your car) that are worth £6,000 or more when sold. These typically include jewellery, paintings, antiques and matching sets.
If you share the ownership of an asset with another person, you’re exempt from paying tax on the first £6,000 of your share.
When working out your gain from personal possessions, your gain is the difference between what you paid and what you sold it for. However, there are certain circumstances where you’ll need to use the market value instead. These include:
- You owned the asset before April 1982
- You sold the asset for less than it’s worth to aid the buyer
- The asset was inherited and you’re unfamiliar with the Inheritance Tax already paid
It is worth noting that, if your personal possession has a lifespan of less than 50 years, then you will not have to pay any Capital Gains Tax. Examples of such items include antique clocks and watches.
Once you’ve gathered all the items you’re selling, use a Capital Gains Tax calculator to work out your taxable amount – provided your total earnings exceed your Personal Allowance.
When calculating the capital gain, you can deduct any costs incurred in the purchase or sale. For example, if you sell a painting, any associated costs can be deducted from the gain, reducing the tax you would pay.
You’ll need to pay the Capital Gains Tax rate on the following:
- Properties that are not your main home
- Your main home if you’ve let it out, used it for business, or it’s considerably large
- Shares that are not in an ISA or personal equity plan (PEP)
- Business assets
What don’t you have to pay Capital Gains Tax on?
Firstly, you won’t need to pay the Capital Gains Tax rate on items given as a gift to your spouse or civil partner if they’re given within the tax year that you were living together. You would be charged the same rate if your partner were to then sell the asset on regardless of living circumstances.
Secondly, you won’t be expected to pay Capital Gains Tax on personal possessions when receiving items from the recently deceased. If a relative or friend dies and you’re gifted an item, the tax applied will be done so via Inheritance Tax (paid by the deceased’s estate).
Thirdly, you wouldn’t pay any Capital Gains Tax on assets or gains made from:
- ISAs or PEPs
- UK government gilts and Premium Bonds
- Betting, lottery or pools winnings
However, you will need to pay on property and land in the UK even if you’re a non-resident for tax purposes. This isn’t the case with other UK assets, unless you return to the UK within five years of leaving. In which case, owed Capital Gains Tax on personal possessions is reapplied.
Can you deduct any costs on Capital Gains Tax?
There are certain costs you can reduce from your Capital Gains Tax. For example, if you’re looking to sell a property which is not your primary home, or it is and you’ve let it out, used it for business or it’s quite sizable, then you can include the following deductions:
- Estate agents and solicitors’ fees
- Stamp Duty paid at the buying stage
- Improvement costs
The same principle applies to deducting expenses you incur to value or advertise assets or possessions.
Can you reduce your taxable gain?
As touched upon above, you are able to split asset ownership between you and your partner. Specifically, you can transfer assets to your spouse and reduce your own taxable gain if they are earning under their Personal Allowance.
In addition, there are a number of forms of tax relief you could be eligible for that could either result in a Capital Gains Tax payment delay or in you not paying the tax at all. The two most relevant forms of tax relief in this area are:
- Business Asset Rollover Relief – You’re able to delay paying Capital Gains Tax when you sell or dispose of a business asset and replace said asset within three years.
- Gift Hold-Over Relief – If you’re a sole trader and used a business asset as part of a trade or giveaway, the recipient will pay the Capital Gains Tax when they sell the asset, not you.
- Entrepreneurs’ Relief – If you sell your business, then you would only pay 10% Capital Gains Tax on the qualifying profit instead of the normal 18% or 28% rates.
Do you owe Capital Gains Tax?
There is an annual tax-free allowance of £12,000 (as of 2019/20), meaning you will not pay any tax if your total gains in the year are below this level. If you are required to pay Capital Gains Tax, then:
- If you pay tax at the higher rate of 40% – You’ll pay 28% on residential property, and 20% on other gains.
- If you pay tax at the lower rate of 20% – You’ll pay 18% on residential property, and 10% on other gains.
However, if your capital gain, when added to your other income of the same tax year, takes you in to the 40% tax bracket, then you will have to pay the higher rate of tax on some of the capital gains.
When it comes to submitting your own Self Assessment tax return, factoring in costs incurred simply from selling personal possessions can go overlooked. This is especially true if you work in the industry of home improvements or renting properties.
That’s why our software enables you to factor in all sources of income and ensure that you’re covered come the 31st January.
Interested? Get in touch today and we’ll walk you through all the benefits of our HMRC-recognised software.
Last updated on 25th October 2019.