If you sell an asset that is subject to CGT the rate of tax you will pay will be 0%, 18% or 28%.
In the current tax year 2015-16, you are allowed to make gains of up to £11,100 tax free. In fact the first £11,100 of all gains are free of tax.
If all your taxable income, including any capital gain in excess of £11,100, is within the basic rate income tax band, (and gains are considered to be the top slice of income for this purpose), then the rate of CGT chargeable is 18%. The amount of the basic rate band for 2015-16 is £31,785.
If, however, any or all of a capital gain falls into the higher rate tax band the rate of CGT payable is 28%.
As gains tend to be made on a sporadic basis, and as the amount of CGT payable is calculated as part of an individual’s self assessment, no payments on account will have been made regarding the CGT due. Accordingly, the CGT payable will need to be paid on or before the 31 January following the end of the relevant tax year. For taxable gains declared for 2015-16 any CGT due will be payable 31 January 2017.
Example
Let’s say that your total taxable income is £20,000 and your total taxable gains are £22,100. From your gains, deduct the tax-free allowance of £11,100. This leaves £11,000 to pay tax on.
You’ve used £20,000 of the basic rate band (£31,785 for the 2015-2016 tax year) against your taxable income, so you have £11,785 left.
You have enough of the basic rate band remaining to cover your gains, so you pay Capital Gains Tax at 18% on £11,000. This means you’ll pay £1,980 in Capital Gains Tax 31 January 2017.
Readers who have made gains that are likely to be taxed in 2015-16 should take advice to estimate any CGT that may be due 31 January 2017. There are numerous reliefs that may apply to the gain you have made.
Gains made by companies are subject to corporation tax, currently 20%.