What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. In the UK, you pay CGT on the 'gain' (the profit), not the total amount you receive from the sale.
CGT applies to a wide range of assets including:
- Shares and investments (not held in ISAs or pensions)
- Residential property (not your main home in most cases)
- Personal possessions worth over £6,000
- Business assets
- Cryptocurrency
- Foreign currency (not personal spending money)
How Capital Gains Are Calculated
The basic formula for calculating a capital gain is:
Allowable costs can include:
- Costs of buying and selling (broker fees, stamp duty, legal fees)
- Costs of improving the asset (but not maintenance)
- Costs of establishing, preserving, or defending your title to the asset
UK Capital Gains Tax Rates
CGT rates in the UK depend on your total taxable income and the type of asset sold. The rates have changed significantly in recent years.
| Tax Year | Annual Exempt Amount | Basic Rate (Other) | Higher Rate (Other) | Basic Rate (Property) | Higher Rate (Property) |
|---|---|---|---|---|---|
| 2023/24 | £6,000 | 10% | 20% | 18% | 28% |
| 2024/25 | £3,000 | 10% | 20% | 18% | 24% |
| 2025/26 | £3,000 | 18% | 24% | 18% | 24% |
Tax-Free Allowance (Annual Exempt Amount)
Every individual has an annual tax-free allowance for capital gains. The allowance has been reduced significantly:
- 2022/23: £12,300
- 2023/24: £6,000
- 2024/25 onwards: £3,000
This means you only pay CGT on gains above the annual exempt amount. Married couples and civil partners each have their own allowance.
Determining Your Tax Rate
Your CGT rate depends on your total taxable income for the year. Here's how it works:
- Add your total taxable income and capital gains together
- If this total is below the basic rate threshold (£37,700 for 2024/25), you pay the basic rate
- If it exceeds the threshold, gains within the basic rate band are taxed at the basic rate, and gains above are taxed at the higher rate
Example Calculation
Let's say you have:
- Annual income: £45,000
- Capital gain from shares: £15,000
- Tax year: 2024/25 (allowance: £3,000, basic rate band: £37,700)
Step 1: Calculate taxable gain
Taxable gain = £15,000 - £3,000 = £12,000
Step 2: Determine remaining basic rate band
Personal allowance = £12,570
Basic rate band = £37,700
Basic rate threshold = £12,570 + £37,700 = £50,270
Income uses: £45,000 - £12,570 = £32,430 of basic rate band
Remaining basic rate band: £37,700 - £32,430 = £5,270
Step 3: Calculate tax
£5,270 × 10% (basic rate) = £527
£6,730 × 20% (higher rate) = £1,346
Total CGT = £1,873
Residential Property CGT
Capital gains on residential property are taxed at higher rates than other assets. From 2024/25:
- Basic rate taxpayers: 18%
- Higher/additional rate taxpayers: 24%
Important: 60-Day Reporting Rule
If you sell a residential property that's not your main home, you must report and pay any CGT within 60 days of completion. Failure to do so can result in penalties and interest charges.
CGT Exemptions and Reliefs
Main Home Relief (Private Residence Relief)
You don't usually pay CGT when you sell your main home if:
- You've lived in it as your main home for all the time you've owned it
- You haven't let it out (or part of it)
- You haven't used it for business
- The grounds including all buildings are less than 5,000 square metres
Other Exemptions
- ISAs and pensions: Gains within ISAs and pension funds are tax-free
- Betting and lottery winnings: These are not subject to CGT
- Gifts to charity: No CGT on assets donated to charity
- Transfers between spouses: No CGT on transfers between married couples/civil partners
- Personal possessions worth £6,000 or less: These are exempt
Reliefs That Reduce CGT
- Business Asset Disposal Relief: 10% rate on qualifying business disposals (up to £1m lifetime limit)
- Investors' Relief: 10% rate for qualifying shares in unlisted trading companies
- Rollover Relief: Defer CGT when reinvesting in qualifying business assets
- Gift Hold-Over Relief: Defer CGT when gifting business assets or assets to charity
Using Capital Losses
If you make a capital loss, you can use it to reduce your gains in the same tax year. If losses exceed gains, you can carry forward unused losses to future years (but not backwards).
Key rules for losses:
- Losses must be reported to HMRC within 4 years
- Current year losses must be used before brought forward losses
- You can carry forward losses indefinitely
- You cannot create an artificial loss to reduce tax
Reporting and Paying CGT
When to Report
- Residential property: Within 60 days of completion
- Other assets: Through your Self Assessment tax return by 31 January following the tax year
You Don't Need to Report If:
- Your total gains are within the annual exempt amount
- You sold a main home that qualifies for full Private Residence Relief
- Your gains are from exempt assets only
Frequently Asked Questions
Yes, cryptocurrency is treated as property for CGT purposes. You pay CGT on gains from disposing of crypto (selling, exchanging, using to pay for goods/services, or gifting). The standard rates for "other assets" apply. Each disposal is a taxable event, and you must keep detailed records of all transactions.
Yes, transfers between spouses/civil partners are CGT-free. This means you can use both partners' annual exempt amounts and potentially access lower rate bands. However, the recipient takes on the original cost basis, so CGT is deferred, not avoided.
You should keep records of: purchase price and date, sale price and date, costs of buying/selling/improving, details of any reliefs claimed, and evidence of market values if assets were gifted or inherited. Keep records for at least 5 years after the 31 January tax deadline.
Inherited assets are valued at the market value at the date of death (probate value). You only pay CGT on the gain from that date when you sell. The original owner's gain is effectively wiped out (though there may be Inheritance Tax implications).
No, gains on investments held within ISAs (Individual Savings Accounts) are completely free from Capital Gains Tax. This is one of the main benefits of ISAs. However, once you withdraw investments from an ISA, any future gains will be subject to CGT.
The "30-day rule" prevents you from selling shares and buying them back within 30 days just to crystallize a gain or loss. If you rebuy within 30 days, the sale is matched to the repurchased shares for CGT purposes. This is why investors sometimes use a spouse's account or different but similar investments.