Capital Gains Tax causes a lot of confusion in the United Kingdom. Currently, what are you required to pay capital gains tax on and how much are you required to pay? James Carruthers, Associate, explains the basics.
What is Capital Gains Tax?
Capital Gains Tax is a tax on the sale profit when you dispose of something that has gone up in value. Disposing of something means:
- a sale
- gifting or transferring it to someone else
- trading it in exchange for something else
- getting compensation for it i.e. an insurance pay out
Capital Gains Tax in Property
Let’s say you bought some land for £50,000 and subsequently sold it for £150,000; Capital Gains Tax would be due on the £100,000 profit. Don’t worry, you only have to pay if you make a profit when disposing of a property that isn’t your home. For example:
- buy-to-let properties
- business premises
- inherited property
It is very common for property to be transferred as inheritance. When inheriting an asset, any application Inheritance Tax will usually have been paid by the deceased estate, however, you may be required to pay capital gains tax if you later dispose of the asset you inherited.
What am I Likely to Pay?
The amount you pay depends on the level of your annual taxable income, the level of profit/gain you have achieved, as well as any tax reliefs that you may be entitled to.
If you’re a higher rate taxpayer, Capital Gains Tax is equal to 28% on any profit/gain from residential properties which are not your main residence, and 20% on any profit/gain from other assets. You may still also need to pay capital gains tax on assets which sold at a loss if your total taxable gains for the year exceed the tax-free allowance.
For any property assets that have been owned for a long period of time, any Capital Gains Tax due will be based upon the property’s value as at the 31st of March 1982 rather than the date of acquisition.
Reliefs from Capital Gains Tax are available to help defray the amount of tax that is to be paid; including the likes of Entrepreneurs Relief and Retirement Relief.
How can we help?
If you have disposed of a property asset using any of the aforementioned methods, you need to submit a market valuation of the property which will be reviewed by the Valuation Office Agency (VOA) on behalf of Her Majesty’s Revenue and Customs (HMRC).
It’s therefore vital that robust valuations are prepared that can stand up to scrutiny under the VOA review process, and that provide an appropriate depth of evidence in which to challenge or raise a dispute if necessary.
At George F. White, we have a skilled team of RICS-Registered Valuers who have the experience and expertise of preparing high standard Capital Gains Tax valuation reports that accord with the necessary industry standards.
For more information about our commercial property services, please visit our commercial property pages.