What records should I keep for CGT purposes?

Introduction

Capital Gains Tax (CGT) is a tax on the profit when you sell an asset that has increased in value.

In the UK, it's essential to keep accurate records for CGT purposes to ensure you pay the right amount of tax and comply with HMRC requirements.

This guide will explain what records you need to maintain and why they are important.

Records of Purchases

Keeping detailed records of your asset purchases is crucial. These records should include purchase receipts, invoices, or contracts that show the date and cost of acquisition.

If you buy shares, retain the contract note from your broker which details the purchase price and date.

For property transactions, keep the completion statement from your solicitor as it indicates the property's purchase price and the date of acquisition.

Records of Improvements

When you make improvements to an asset, keep detailed records of these expenses. These can include invoices from contractors or receipts for materials.

It's important to differentiate between maintenance costs and improvement costs, as only the latter can be deducted for CGT purposes.

Store these documents safely as they may help reduce your CGT liability when you sell the asset.

Records of Sales

When selling an asset, you need records showing the sale price and date. These could be sale contracts or completion statements.

For shares, a broker's contract note will serve as proof of sale. Keep this document as it determines the calculation of your capital gain.

These records are crucial as they provide evidence of how much profit (or loss) was made on the sale.

Expense Records

Maintaining records of expenses incurred in selling the asset is vital. These may include professional fees such as legal or agent fees.

Only certain costs are deductible from your gain, so ensure you understand which expenses qualify.

These records help you accurately calculate your net gain and consequent CGT liability.

Keeping Digital Records

Storing your records digitally can be more secure and efficient. Use cloud storage or digital backups to preserve scanned copies of important documents.

Ensure digital files are organized and clearly labeled for easy access during your tax calculations or if HMRC requests them.

Digital record keeping can also facilitate easier sharing with accountants or tax advisors.

Duration of Record Keeping

HMRC requires that records are kept for at least five years after the Self-Assessment deadline of the tax year in which you sell an asset.

This duration allows for any HMRC queries or inspections and ensures you have the necessary documentation to hand.

Failure to keep records for this period may result in penalties if you're unable to provide information when requested.

Conclusion

Proper record-keeping for CGT purposes not only ensures tax compliance but can also reduce your potential tax liability.

By keeping organized records of purchases, improvements, sales, and expenses, you can accurately report your gains or losses.

Make use of digital tools for efficient record management, and always adhere to HMRC's requirements to avoid any pitfalls.