Pay capitals gains now or wait until end of the tax year?

Wiley82

Hi all, I'm self-employed, but i made a large capital gain in June this year selling a domain name I've held for around 3 years, this was a large gain for over £100,000, 2 months ago i also sold another domain name that I've owned for 4 years for around £1,000.

I don't do this for a living but am hoping to sell one more domain name this tax year (first domain/investment I've invested in 2 and a half years), but it is a high potential 6 figure+ domain name that i bought to replace the large domain sale i made, I've signed this over to 1 of the best domain brokers, so hopeful of another sale this year.

My intention was to declare my gains from these 2 (hopefully 3) investments at the end of this tax year, but i read something last night that you have 30 days declare capital gains on residential property.

If you was me, would you pay the capital gains i've made from the 2 domain sales I've sold now or wait until the end of the tax year?

Many thanks.

bowlhead99

Wiley82 said:

but i read something last night that you have 30 days declare capital gains on residential property.

The domain names you sold are not residential property (an interest in land containing a dwelling). So, you don't need to worry about what you've read about gains on residential property.

If you was me, would you pay the capital gains i've made from the 2 domain sales I've sold now or wait until the end of the tax year?

The tax on your gains for 2020/21 (the tax year that ends 5 April 2021) must be calculated and paid no later than 31 January 2022. With a tax rate somewhere between 10-20% depending on how much other income you end up with for the tax year and how much of it falls into the higher rate tax bracket, would I pay the £15-£20k+ of tax attributable to those gains now, when I could instead put it in an interest-paying bank account or spend it on buying that amount of premium bonds which I could cash in during January 2022 having perhaps won £150+ of tax-free prizes? 

No, I would buy some premium bonds (expected win rate about 0.8% tax free) or put it in a 1-year deposit earning about 1%.   

As long as you pay HMRC before the tax is due (2022) the amount you owe will not increase. So no need to worry about 'beating inflation' etc - any basic return as interest on a deposit is better than giving it to HMRC earlier and not getting any return at all.

The sort of reasons you might want to pay it off early would be if you'd otherwise be tempted to gamble it away or are the type of person to keep it in cash under your bed where it might get stolen or burnt down in a fire.

Wiley82

Thanks for the reply mate, very knowledgeable and covered everything i wanted to know.

I will wait until the end of the tax year and declare both my income and capital gains tax together.

Thanks again.

TSCati

Is CGT charged at the applicable rate on the date that the gain was realised, or at the applicable rate when you pay it?  If the latter, then the rumoured CGT increase would probably outweigh any premium bond winnings.

bowlhead99

TSCati said:

Is CGT charged at the applicable rate on the date that the gain was realised, or at the applicable rate when you pay it?  If the latter, then the rumoured CGT increase would probably outweigh any premium bond winnings.

It relates to when the gain happens. If they somehow retrospectively change the rules so that gains made earlier this tax year attract tax at a higher rate than the law currently says, the fact that you have already voluntarily made an early payment towards the tax you owe wouldn't change the tax that is due.

macman

You'd do better to delay the 3rd sale until the start of tax year 21/22, if that were possible, thereby utilising your full  £12,300 CGT allowance for 21/22.

Old_Lifer

Assuming the next Budget in 2021  does not completely change  CGT and the current CGT allowance.