Capital Gains Tax and Self Assessment: do you need to file a tax return?

Selling an asset for more than you paid for it can be exciting but it could also mean you have to pay tax. And while Self Assessment is typically associated with self-employed workers, you might also need to complete a tax return if you fall into the capital gains bracket. 

Here, we look at what happens when you sell a second property, shares or even cryptocurrency and reveal how to avoid unexpected bills and penalties. 

What is Capital Gains Tax?

Capital Gains Tax is a tax that you might need to pay when you sell or dispose of an asset that has increased in value. It’s the gain or profit that’s taxed, not the total amount you receive from the sale. It typically includes second homes and buy-to-let properties, shares and investments, cryptocurrency, business assets and valuable possessions like artwork and jewellery. 

Do I need a tax return for Capital Gains Tax?

Whether you need to complete a Self Assessment tax return depends on your circumstances. You may need to file a return if you:

• Have taxable capital gains to report
• Need to declare gains alongside other income 
• Already complete Self Assessment for another reason such as self-employment or rental income

However, not every capital gains requires you to submit a Self Assessment. Some gains can be reported using HMRC’s online Capital Gains Tax reporting service. 

Common situations where people need to report Capital Gains

Some of the most common instances where people need to report capital gains include:

Selling a second property

Capital Gains Tax applies when you sell a buy-to-let, holiday home or another property that isn’t your main residence. This includes properties you may have inherited. 

You don’t usually have to pay Capital Gains Tax when you sell your main home as long as the property has been your only or main residence. Capital Gains Tax will apply if you’ve:

• Let part of the property
• Used part of it exclusively for business purposes
• Owned particularly large grounds
• Lived elsewhere for significant periods

Selling shares 

If you’ve sold investments, employee shares or part of a stock portfolio, you might have a capital gain that needs to be reported. 

Selling cryptocurrency 

HMRC generally treats cryptocurrency as an investment asset. This means that selling, exchanging or spending it can create a taxable capital gain. 

Selling valuable items

You may also need to consider Capital Gains Tax when selling valuable personal possessions such as artwork, antiques, jewellery and collectibles.

Reporting Capital Gains Tax return

Wondering how to declare capital gains to HMRC? It’s relatively simple and involves these steps:

1. Calculate your capital gain
2. Deduct allowable costs and expenses
3. Apply any available exemptions or reliefs
4. Report the gain to HMRC through the appropriate method
5. Pay any tax due by the relevant Capital Gains Tax deadline

Depending on the type of asset and your circumstances, you may report your gain through your Self Assessment tax return or another HMRC reporting service. 

How is Capital Gains Tax calculated?

Remember, Capital Gains Tax is based on the profit you make, not the sale price. For example:

• Purchase price: £20,000
• Sale price: £35,000
• Capital gain: £15,000

What’s more, you may be able to deduct allowable costs from the capital gain amount before calculating the tax due.

Common Capital Gains Tax mistakes to avoid

Capital Gains Tax can seem a little overwhelming, especially if you’ve never completed a tax return before but knowing some of the most common mistakes can make it simpler to understand:

• Assuming PAYE means you don’t need to report gains
• Forgetting about gains from shares or investments
• Missing reporting or payment deadlines
• Failing to keep purchase and sale records
• Confusing the sale proceeds with the taxable gain

One of the most important things you can do is keep accurate records and understand your responsibilities to avoid unnecessary penalties.

Can GoSimpleTax help with Capital Gains Tax returns in the UK?

If you need to complete a Self Assessment tax return that includes Capital Gains Tax, GoSimpleTax can help. Our easy-to-use tax return software walks you through completing your return, declaring capital gains alongside other income and helps you to submit directly to HMRC with confidence. That’s just the start too. So, why not see why thousands of others trust GoSimpleTax to keep their financial responsibilities easy and try it out today? Start your free trial now.

Capital Gains Tax FAQs

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.