Capital Gains Tax, or CGT, is a levy imposed on the profit earned from the sale of assets such as stocks, real estate, and valuable collectibles. Understanding how this tax applies to different types of assets is crucial for individuals and businesses alike.
Whether you are an investor, homeowner or business owner, tracking taxable gains and applying the correct rates can significantly impact financial planning. Below is an overview of CGT, how it is calculated, and the key exceptions to be aware of.
How Capital Gains Tax Works
Capital gains are realised when an asset is sold at a profit. However, the tax does not apply to unsold investments or unrealised gains. CGT only affects assets that have been sold and the profits realised. The tax rates depend on how long the asset was held before selling:
Short-term capital gains, made from selling assets within one year of purchase, are taxed as ordinary income.
Long-term capital gains from selling assets owned for more than one year have tax rates of 0%, 15%, or 20%, depending on the individual’s income bracket.
Most taxpayers benefit from lower tax rates on long-term gains, which encourages holding investments for extended periods.
Capital Gains Tax on Different Asset Classes
The treatment of CGT varies depending on the type of asset being sold:
Investment assets – Stocks and shares are subject to CGT when sold at a profit, but dividends may be taxed differently.
Real estate – Owner-occupied properties may be eligible for exemptions, with up to £250,000 of gains excluded for single homeowners and £500,000 for married couples.
Collectibles – Antiques, jewellery, and artwork are subject to a higher long-term CGT rate of 28%.
How Businesses Handle Capital Gains Tax
Businesses also need to consider CGT when selling assets. Seeking professional advice from business accountants can help manage tax obligations efficiently by understanding applicable exemptions and reliefs etc.
For those looking for business accountants Reading, consider checking out a specialist such as https://www.hazlewoods.co.uk/expertise/business-accountants/reading.
By carefully planning capital gains transactions, taxpayers can minimise their tax burden and maximise returns on their investments.
