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A capital gain is a profit that you make when you sell an asset. An asset could be anything from a property to shares in a company, to a cryptocurrency, to a piece of art, to a vintage car – and more.
Essentially, a capital gain is the difference between the price you buy your asset for and the price you sell for. When you make a profit on an asset, you may have to pay tax on it.
There is a tax-free Capital Gains Tax allowance of £12,300. This means that you don’t have to pay tax on the first £12,300 of profit that you earn. Anything that exceeds this limit is subject to tax at these below rates:
|Type of asset||Basic rate||Higher rate|
But there are other exemptions to be aware of. For example, when you sell your private residence (i.e the home you live in), this isn’t subject to Capital Gains Tax.
Here’s an example of how Capital Gains Tax works in action👇
If you sell an asset for less than you bought it, you make what it’s called a capital loss. You can use this loss (also known as offsetting) to reduce other capital gains you’ve made and, ultimately, pay less tax.
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