Has Capital Gains Tax left you feeling confused?
Updated: Jul 13
Don't know what Capital Gains Tax (CGT) is? Or even how to calculate it? We can help!
As confusing as Capital Gains Tax can be when selling your property, it can be boiled down to two very simple factors. All you need to know is your annual salary and the profit you made from your property.
What is a Capital Gain?
To put it simply, it's the profits you make from selling your property. For example, if you purchased a property for £235,000 and later sold it for £300,000, then your profits would be £65,000. This is the difference between both your purchase and selling price, and this £65,000 is the figure you would pay tax on, not the selling price.
When calculating your Capital Gains Tax, the UK government takes into consideration your annual salary. If you earn below <£50,000 per year then your capital gains tax is calculated at 18% for property assets. Alternatively, if you earn above >£50,000 then your capital gains tax is calculated at 28%, referred to as the 'higher rate'.
Still with us? Great. I've got some good news for you. The first £12,000 profit you make on your property is tax free!
Following on from your tax free £12,000, any profits you make greater than £12,000 will subsequently taxed at 18% for those of you who make less than £50,000 per year and 28% for those who earn above £50,000 per year.
Referring back to the aforementioned example of £65,000 profit;
If you have £65,000 profit, with £12,000 of that tax free, the figure you would pay tax on is actually lowered to £53,000. Consequently, if you earned below £50,000 per year, this would equate your capital gains tax to be 18% of £53,000 totalling £9,540. Leaving you with £43,460 profit.
Alternatively, if you earned above the £50,000 per year threshold, your capital gains tax would equate to 28% of £53,000 totalling £14,840. Leaving you with £38,160 profit.
Has this explained Capital Gains Tax for you? If you're still struggling wrapping your head around it, you're welcome to contact our team of experts at LPC Invest and discuss it further! We are experts in property investment and can assist with any of your questions. Why not have a look at our latest buy-to-let properties available in the UK today?