How Do I Report Capital Gains On My Taxes?
For most, reporting capital gains isn't usually a concern. The vast majority of people do not exceed their capital gains allowance in any given year. However, if you have recently sold a home or a large number of stocks or shares you could be liable.
In this post, we take a look at how you can report capital gains on your taxes.
Reporting Non-Property Capital Gains
The UK tax authorities split capital gains taxes into two categories: gains made on property, and gains made on every other type of asset.
In 2021/2022, the capital gains tax threshold is £12,300. This figure is the amount of profit you are allowed to take on your capital without having to pay any tax. The amount above this will accrue tax.
If You Need To Report Immediately
If you make a capital gain, you may need to report what you owe immediately. You can do this using the government's Capital Gains Tax service.
To log in, you require a Government Gateway user ID and password. Don’t worry if you don’t have one yet: it’s easy to set up.
Once you report your gains to HMRC, you’ll receive a letter in the post or an email. This document will provide you with a payment reference and provide more information on how you can pay.
HMRC offers customers many ways to pay, including debit card, standing order, bank transfer and cheque. It also gives you the option of adjusting your reported capital gain at a later date if you made an error or omission. Simply give them your report reference number and then wait for an email update on your tax position.
If You Report Your Income Via Self-Assessment
If you report your income via self-assessment, you do not have to report capital gains immediately. Instead, you can include them on your self-assessment tax return
for the tax year after the one in which you dispose of your assets. So for instance, if you made a capital gain in the year 2021/2022, you don’t have to report it on your self-assessment until 2022/2023.
If you’re not yet signed up for self-assessment, you can do so at a time of your choosing. However, if you plan on using self-assessment going forward (and not an agent, such as your accountant), you’ll need to begin the application process at least a month before your next tax return is due. Otherwise, HMRC may not grant self-assessment status in time.
Reporting capital gains on property after 6 April 2020
The government recently changed the rules regarding capital gains reporting on property. If you sold a UK residential property after 6 April 2020, you’ll need to set up a UK property account within 30 days of the sale.
Again, you’ll require a Government Gateway user ID and password if you don’t have these already.
Once you create an account, you can sign in and report any capital gains you make on properties.
If you are reporting capital gains on behalf of somebody else - for instance, a deceased relative - you can also use your Government Gateway account to report the gain on their behalf. All you’ll need is evidence that you can act on their behalf, such as a lasting power of attorney, and HMRC will deal with the tax through you.
Calculating Capital Gains
Before you report capital gains using any of the methods discussed above, you’ll have to calculate how much money you owe. Fortunately, working out CGT isn’t difficult.
First, you’ll need to collect information about the price you paid for income-generating assets you bought or sold, such as property, stocks or shares, and the dates for the transactions.
Capital gains taxes only apply to gains you made within any given tax year above the threshold. So if you bought an asset ten years ago and cashed in tax year 2020/2021, then it will count towards your capital gains bill and allowance this year.
Once you know the price at which you bought and the price you sold, you can calculate your capital gains tax.
HMRC requests that you itemise and provide calculations for every asset you buy or sell. This way, you can keep track of your actual tax position. You should also include other details too, such as the cost of disposing of assets and tax reliefs to which you’re entitled.
Ultimately, it is your responsibility to tell the tax authorities about any capital gains tax you may owe. If you are struggling, work with an accountant such as Smart Solutions Taxation & Accounting.