What is Capital Gains Tax and is it Something You Need to Pay?
How you can save money, time and stress with effective tax planning solutions.
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James D’Mello from London’s The SidebySide Partnership, tells us more about their union with property experts The Granville Group, explains what Capital Gains Tax is, and how their years of experience can help landlords and property investors.
Q: What is Capital Gains Tax?
A: It’s the tax you pay on the amount of profit you make when selling an asset. For example, if your buy-to-let property has increased in value since you bought it, you’ll need to pay Capital Gains Tax (CGT) on the amount it’s risen by, not the total amount of money you sell your home for.
To make it clear, if you bought a property for £200,000, and sell it for £250,000, then you may need to pay CGT on the £50,000 surplus.
People living in the UK have a yearly CGT tax-free allowance, which is currently £12,300 for 2021 to 2022.
Q: Who pays CGT?
A: Anyone that disposes of or sells assets worth over the CGT personal allowance. These assets can include:
- Personal possessions worth over £6,000, not including your car
- Any property that is not your primary residence
- Investments and shares not held in an ISA (Individual Savings Account) or PEP (Personal Equity Plan)
- Some business assets
Q: What type of property do you need to pay Capital Gains Tax on?
A: CGT is chargeable on numerous property types, including buy-to-let homes, commercial properties and business premises, land and even on inherited property. Second-home or holiday homeowners and landlords are usually the most affected.
Q: How much is CGT?
A: Higher-rate taxpayers need to pay up to 28 per cent Capital Gains Tax and those on basic rate tax will need to pay up to 18 per cent.
Changes to CGT were introduced last year, meaning sellers now have 30 days from the date of sale to report the gains to HMRC and pay the taxable amount. Failure to do this could result in you being fined and needing to pay additional interest.
It can be worth seeking professional advice to gather the information you need and help you plan, save money, avoid making mistakes, and reduce stress.
Q: How can you reduce or defer Capital Gains Tax?
A: CGT, unfortunately, can’t be avoided. However, there are ways you can reduce and defer the amount you need to pay.
One of the options you may consider is using the government’s Enterprise Investment Scheme (EIS) to defer your gains. In order to defer 100 per cent of your capital gain, you will need to invest the full amount you earn from the sale, following the EIS rules. The scheme also enables investors to claim up to 30 per cent of their investment back against their Income Tax in the last two years.
We offer higher rate taxpayers the opportunity to invest their gains in a tax-efficient fund, which can enable you to defer your CGT and qualify for Inheritance Tax and Income Tax Relief. You could also reduce or defer your capital gain by using a trust or transferring the amount to a spouse. For help understanding your options, it can be beneficial to speak with a financial advisor.
Q: Why is tax planning important and how can you find out more?
A: It’s important to consider the amount of Capital Gains Tax you may need to pay if you’re considering selling a property. By preparing and seeking professional advice from a regulated financial advisor, you can understand your options and make the best decision for you. This can help you make the most of your money, provide for your family and plan effectively for the future.
We at The SidebySide Partnership, a venture capital manager, have teamed up with The Granville Group, a distinguished property developer, to help you manage the impact of CGT. If you’ve recently sold a property and want to find out more about how to defer or reduce your Capital Gains Tax, please get in touch using the details below.