Topic overview

Capital gains

Capital gains

Capital gains are made when you sell an asset for more money than you paid for it. As a result, you can be subject to tax which differs according to whether you are an individual or a company. If you're self-employed or in a business partnership you pay capital gains tax. Limited companies and most unincorporated associations pay corporation tax on capital gains not capital gains tax

Effective tax planning can take advantage of tax allowances and reliefs on capital gains to create a lower overall tax liability.

Rules can be complicated, so take professional advice from your accountant.

Capital gains tax, allowances and rates for individuals, sole traders and partnerships

Capital gains tax (CGT) applies to any gains you make when you sell assets such as land or investments. The assets could be business or personal, although some personal assets are exempt (including your main home). If you make gains on some assets and losses on others, CGT applies to the net overall gain made.

The Annual Exempt Amount is the tax-free allowance for capital gains. You only pay CGT on the amount by which your gains exceed this allowance (if at all). The capital gains tax allowance for 2020/21 is £12,300 (£12,000 in 2019/20, £11,700 in 2018/19 and £11,300 in 2017/18).

The capital gains tax rate that UK individuals pay depends on their total income and is usually 10% or 20% (18% and 28% for residential property).

Various reliefs can also reduce or defer CGT for individuals. These include Entrepreneurs' relief for individuals selling part or all of their business and Business Asset Rollover relief, if you reinvest gains in other business assets. Alternatively, you may be exempt from capital gains tax if your gain was invested in shares under the Enterprise Investment or Seed Enterprise Investment Schemes.

CGT is collected through the self-assessment system; you provide details on your self-assessment tax return.

Capital gains for companies - chargeable gains

Capital gains made by companies are treated differently to those made by individuals and are referred to as chargeable gains.

There is no tax-free annual fixed allowance for chargeable gains made by companies. Instead, you can claim an indexation allowance. This reduces the chargeable gain by allowing for inflation.

Chargeable gains are subject to corporation tax and are included on your corporation tax return. So the tax rate UK companies pay on chargeable gains (after indexation allowance) is their corporation tax rate.

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