Capital Gains Tax: What You Need to Know
Introduction
Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that's increased in value. It's the gain you make that's taxed, not the amount of money you sell the asset for.
Rates for Capital Gains Tax
The CGT rate you pay depends on the total amount of your taxable income. Work that out first, then use the table below to find your rate:
| Taxable Income | CGT Rate |
|---|---|
| Up to £12,570 | 0% |
| £12,571 to £50,270 | 10% |
| £50,271 to £150,000 | 20% |
| Over £150,000 | 28% |
Capital Gains Tax Allowance
The Capital Gains Tax allowance in 2024-25 is £3,000. This is the amount of profit you can make from an asset this tax year before any tax is due. This is half of what it was in 2023-23.
How to Calculate Capital Gains Tax
To calculate your Capital Gains Tax liability, you need to know the following:
- The sale price of the asset
- The original purchase price of the asset
- Any costs of selling the asset
Once you have this information, you can use the following formula to calculate your Capital Gains Tax liability:
``` Capital Gains Tax = (Sale Price - Original Purchase Price - Costs) x CGT Rate ```Example
Let's say you sell a share of stock for £10,000. You originally bought the share for £5,000 and there were no costs of selling the share. Your Capital Gains Tax liability would be:
``` Capital Gains Tax = (10,000 - 5,000 - 0) x 10% = £500 ```Conclusion
Capital Gains Tax is a complex tax, but it's important to understand how it works if you're planning to sell or dispose of an asset that's increased in value. By following the tips in this article, you can make sure you're paying the correct amount of tax.
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