This is a really interesting article with a great illustration of a Capital Gains Tax (CGT) calculation, and the traps and assumptions which one can easily make without the right advice.
The way in which CGT is calculated is complex and takes into account a myriad of factors depending on, for example, length of ownership, occupation, and assessment of capital expenditure for property improvements.
You only have to pay CGT on your overall gains above your tax-free allowance (called the Annual Exempt Amount). The current CGT allowance is £12,300 for individuals and £6,150 for trusts.
It may also be possible to use losses made on the disposal of other assets to offset against the gain.
In the example set out by the Guardian, if you are selling a property you have previously lived in as your main residence, a formula is applied to work out how much of the gain is tax-free. The formula is not straightforward and highlights the need for accurate calculations and reporting.
The Annual Exempt Amount is deducted from the overall gain and the relevant rate of CGT applied (18% for basic rate taxpayers and 28% for higher or additional rate taxpayers).
Getting the right advice in a timely manner is crucial, especially after the latest change in April 2020 which sets out that CGT must be calculated, reported, and paid within 30 days of completion of a sale.
There has been much talk of reviews to CGT and it may be that changes are afoot.
We rented out our former home – how much CGT to pay?