What is capital gains tax and how do you calculate it?
CAPITAL gains tax is the money you pay to HMRC when you sell something that has gone up in value, such as stocks and shares, artwork or even a second home.
Historically, the rates you pay are quite low and there are lots of exemptions, but chancellor Rishi Sunak is considering changing the rules to help plug holes in the UK's finances left by the coronavirus crisis.
You’ll need a Government Gateway user ID and password. If you do not have a user ID, you can create one when you report and pay.
When you use the service you’ll need to upload PDF or JPG files showing how your capital gains and capital gains tax were calculated.
You must report by December 31 after the tax year when you had the gains. So make the gains in this tax year - 2020/21 - and you'll need to report any gains by December 31, 2021.
You can also report gains using a self-assessment tax return. You do this in the year after you disposed of the assets.
If you have sold a property the deadline is sooner though, and you must within 30 days.
You may have to pay interest and a penalty if you do not report gains on property within the time limit.
How much capital gains tax will I have to pay?
How much you have to pay will depend on how much profit you made, what kind of tax payer you are, and whether or not you're selling property.
If you’re a higher or additional rate taxpayer you pay:
The rate of capital gains tax on buy-to-let properties and second homes for basic rate taxpayers is significantly higher - you need to pay 28 per cent of your taxable gains.
What changes is the chancellor considering?
Rishi Sunak is considering changing the rules around capital gains tax to try and plug holes in the UK's finances left by coronavirus bail out plans.
He has has commissioned the Office of Tax Simplification (OTS) to look into the historically low rates of the levy.
It is not yet known what measures could be introduced, but the chancellor is thought to be considering changing or scrapping some reliefs and exemptions, such as the one for people selling their main residence eg, their home.
The OTS has launched a consultation on capital gains tax which closes on October 12.
After that, it will be publishing its findings on how the tax systems works and whether it should be revamped.
The government may decide not to make any changes at all, but if it does it will then set out a schedule and timeline.
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