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Calculating Your Capital Gains Tax Bill

How Should I Calculate My Capital Gains Tax Bill?

Step One

Firstly, it is important to ascertain how much disposable income outcome you have from your main salary, pension, or other types of income. The easiest way to do this is by subtracting your tax-free personal allowance (£12,750 in 2021-22) from your total income.

Step Two

Calculate your taxable capital gain by subtracting the tax-free capital gains allowance (£12,300 in 2021-22) from your profits. Remember, you’ll only need to pay capital gains tax on the gain you make from an asset, as opposed to the original sale price.

This means that you will be able to subtract the price you initially paid for the asset, including any extra costs included in buying and selling it.

You can also take away the costs of improving assets, but the costs of maintaining them are not included in this. However, if you rent them out, any maintenance costs you accrue may be taken away from any income tax you are charged on the rental income.

Step Three

Combine your taxable capital gain with your taxable income.

For a basic rate taxpayer, the highest taxable income is £37,700 in 2021-22 before you must pay the higher rate. As a result of the tax-free personal allowance, most people will be able to earn up to £50,270 before they need to start paying the higher rate.

However, it is important to remember that some higher earners may need to start paying the higher rate earlier, as they will start to lose their personal allowance if their earnings exceed £100,000.

Moreover, if you are eligible for the marriage allowance, this will also increase the amount you are able to earn tax-free, but you will still need to start paying the higher rate at £50,270.

If the combination of your taxable income and taxable capital gain is lower than £37,700, you will have to pay the basic rate capital gains tax. This equates to 10% on most investments and 18% on second homes.

If the two figures combined move you into a higher threshold, you will need to pay the basic rate (10% or 18%) on the part up to the threshold, and then the higher rate (20% or 38%) for the remaining part.

This can be confusing to work out, so it is crucial to get specialist financial advice. One of our independent financial advisors at Thornton and Baines will be happy to talk you through your personal situation over a free zoom call. Visit our website at: to find out more.

How to Work Out Capital Gains Tax: Example

Your taxable income (what is left after subtracting the personal allowance) is £30,000 and your taxable gains are £12,600, none of which are from your property.

After subtracting the capital gains allowance of £12,300, there is £300 remaining that you will need to pay tax on.

Combine this £300 with your taxable income, increasing it to £30,300. This is still under the higher-rate threshold, meaning that you will have to pay 10% on the capital gains. Therefore, your capital gains bill will be £30.

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