What is Capital Gains Tax and how do you pay it? Simon Page of Stephensons Solicitors LLP explains what you need to know about Capital Gains Tax.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the chargeable gains of individuals, the personal representatives of a deceased’s estate and the trustees of a trust or settlement.

What do you pay Capital Gains Tax on?

Most assets are chargeable to Capital Gains Tax unless they are specifically excluded.

The disposal of an asset either by sale or gifting will ordinarily give rise to either a chargeable gain or a loss which can be offset against other chargeable gains incurred during the relevant tax year ending 5 April or carried forward and utilised against future chargeable gains occurring in a later tax year.

A chargeable gain or loss can also arise in a situation where capital is received where no disposal of an asset has taken place, such as compensation for asset damage (albeit if compensation is used to restore the asset no gain will arise).

For excluded or exempt assets no chargeable gain or loss can usually arise apart from some special provisions concerning losses on chattels.

Exempt assets

Exempt assets broadly include:

• private cars, including veteran and vintage cars
• chattels – non wasting and business chattels with disposal proceeds under £6,000
• chattels – wasting assets unless utilised by a business and capital allowances have/could be claimed or unless used as plant or machinery by a third party
• Compensation – for personal or professional injury or wrong, rights to receive compensation from UK/foreign banks on frozen accounts of Holocaust victims and rights to take Court action to recover compensation
• decorations for valour
• foreign currency bank accounts
• gifts to charities
• life assurance – receipts by the original owner or beneficiaries of the policy
• residence – a taxpayer’s only or main residence
• Premium Bonds – savings certificates and SAYE contracts
• employee shareholder shares entered into before 1 December 2016 up to £50,000 subject to lifetime limit on gains
• government gilts and qualifying company loan stock
• sterling and foreign currency in respect of person’s own spending and maintenance of assets outside UK
• lottery, prizes and betting winnings

Currently, for individuals upon death there is still no Capital Gains Tax payable by the personal representatives of their estate.

Do you have to pay Capital Gains Tax on gifts to spouse or charity?

A transfer of assets between spouses or civil partners living together is treated as a no gain/no loss disposal and no chargeable gain therefore arises.

No Capital Gains Tax liability arise on gifts of land, property or shares donated to charity.

What are the Capital Gains Tax rates?

The 2021/22 (tax year ending 5 April 2022) Capital Gains Tax annual exemption is:

• £12,300 for individuals
• £6,150 for trusts and estates

An individual who is a basic rate taxpayer is liable to Capital Gains Tax at a rate of 18 per cent on residential property and 10 per cent on other chargeable assets. A higher or additional rate taxpayer will pay Capital Gains Tax at a rate of 28 per cent on residential property and 20 per cent on other chargeable assets.

Trustees of trusts and settlements and personal representatives of estates will pay 28 per cent on residential property and 20 per cent on other chargeable assets.

How do you pay Capital Gains Tax?

Under the self-assessment tax system Capital Gains Tax is payable by individuals, trusts and personal representatives by 31 January following chargeable gains reported in the preceding tax year ended 5 April. Payment is normally made by bank transfer or cheque.

For those individuals not registered to file annual tax returns under self-assessment HM Revenue & Customs have introduced a ‘real time’ Capital Gains Tax service whereby chargeable gains other than residential property can be reported online. This service is not available to tax agents and the chargeable gain must be reported by the 31 December following the tax year of disposal. The payment date is by 31 January following the tax year of disposal.

For sales of UK property either by resident or non-resident individuals the gain needs to be reported and the tax paid within thirty days of completion of the disposal.

About the author

Simon Page is a probate executive in the probate department at Stephensons Solicitors LLP.

See also

How to calculate and pay tax after someone dies

The duties of an executor: what to do when someone dies

What is Business Asset Disposal Relief?

Find out more

Capital Gains Tax (GOV.UK)

Report and pay Capital Gains Tax (GOV.UK)

Image: Getty Images

Publication date: 30 September 2021

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.