Date posted: 8th Aug 2023
We are often asked questions on capital gains tax and when and how to report any taxes due.
Capital Gains Tax arises from the sale of a capital asset…
BUT what is a capital asset?
In very simple terms, a capital asset is an asset that generates an income. For example:
- A buy to let property will generate rental income.
- Shares in a company will generate dividend income.
- An interest in a partnership/LLP will generate a profit share taxed as income.
The list is by no means exclusive, but merely the most common forms of capital assets sold that generate a capital gain. If you sell a capital asset, then you may face a capital gains tax charge.
What are the reporting requirements?
The capital gains tax reporting requirements are to report a gain when a) proceeds are in excess of £50,000 or b) the gain is above the annual exempt amount of £6,000 (reducing to £3,000 in 2023/24).
In addition, if an asset has been gifted, there may also be a reporting requirement as the deemed proceeds or gain, may be over the above thresholds.
Are there any other reporting issues?
Similarly, it is necessary to claim reliefs such as holdover relief if a business asset is gifted or a gift is made to a trust.
It is also necessary to report and claim a capital loss, if you wish to use this loss against future capital gains.
Any valuations used, should be reported to HMRC as part of the disclosure on your tax return.
What rates of tax are payable?
There are different rates of tax payable – some of these depend upon the type of asset sold and some simply depend upon the amount of income received.
When does the gain need to be reported and tax paid?
The gain will need to be reported on the tax return for the tax year in which the gain is made with the tax payable by 31 January after the end of the tax year. Thus the sale of shares in July 2022 (falling between 6 April 2022 and 5 April 2023), will need to be reported on the 2022/23 tax return, with any tax due on 31 January 2024.
However, for residential property sales, there is a separate report required to be made to HMRC within 60 days of sale. The gain will also need to be reported on the annual tax return, if one is completed.
If you have any queries regarding Capital Gains Tax planning or reporting, please give us a call.
