Capital Gains Tax: A Beginner's Guide
Understanding Capital Gains
Capital gains tax (CGT) is a tax imposed on the profit (gain) made when an asset, such as shares, stocks, or property, is sold or disposed of. It is only the gain that is taxable, not the entire proceeds from the sale.
Capital Gains Tax Rates
The CGT rate you pay depends on the total amount of your taxable income. As of the 2024-2025 tax year, the following rates apply:
- Basic rate: 10% (for gains up to £37,700)
- Higher rate: 20% (for gains over £37,700)
Taxable Profits
To calculate your taxable profit, you need to subtract your allowable deductions from your total gain. The CGT allowance for 2024-2025 is £3,000.
Calculating Your CGT Liability
To calculate your CGT liability, you can use the following formula:
CGT liability = (Total gain - Allowable deductions) x CGT rate Example
If you sell shares for £25,000 that you originally purchased for £20,000, your capital gain is £5,000. If you have no allowable deductions and are a basic rate taxpayer, your CGT liability would be £500 (10% x £5,000).
Comments