Capital Gains Tax (CGT) is one of the most misunderstood taxes in the UK, yet it affects millions of people who sell assets such as property, shares, or valuable possessions. Whether you're selling a buy-to-let property, cashing in investments, or disposing of a business, understanding how CGT works can help you legally minimise your tax bill and avoid costly mistakes.
Key Takeaway
Capital Gains Tax is charged on the profit you make when selling or disposing of an asset that has increased in value—not on the total sale price. You only pay CGT on gains above your annual tax-free allowance.
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit (or 'gain') you make when you sell, give away, exchange, or otherwise dispose of an asset that has increased in value. The tax applies to the difference between what you originally paid for the asset and what you receive when you dispose of it.
It's important to understand that CGT is completely separate from Income Tax, although your Income Tax band does affect the rate of CGT you'll pay.
Assets Subject to CGT
CGT may apply when you dispose of:
- Second homes and buy-to-let properties
- Shares and investments (outside ISAs and pensions)
- Business assets including equipment and premises
- Valuable personal possessions worth over £6,000 (jewellery, art, antiques)
- Cryptocurrency
- Foreign currency (excluding spending money)
- Land and property
CGT Rates for 2024/25 Tax Year
The rate of Capital Gains Tax you pay depends on two factors: your total taxable income and the type of asset you're selling. Following the Autumn Budget 2024, CGT rates have increased significantly.
| Tax Band | Standard Assets (from 30 Oct 2024) | Residential Property | Carried Interest (from April 2025) |
|---|---|---|---|
| Basic Rate Taxpayer | 18% | 18% | 32% |
| Higher/Additional Rate Taxpayer | 24% | 24% | 32% |
⚠️ Recent Changes
The Autumn Budget 2024 increased CGT rates on shares and other assets from 10%/20% to 18%/24%, effective from 30 October 2024. Residential property rates remain unchanged. Business Asset Disposal Relief will increase from 10% to 14% in April 2025, then to 18% in April 2026.
Annual CGT Allowance (Annual Exempt Amount)
Every individual has an annual tax-free allowance for capital gains. You only pay CGT on gains that exceed this threshold.
| Tax Year | Individual Allowance | Trusts Allowance |
|---|---|---|
| 2024/25 | £3,000 | £1,500 |
| 2023/24 | £6,000 | £3,000 |
| 2022/23 | £12,300 | £6,150 |
How to Calculate Capital Gains Tax
Calculating your CGT liability involves several steps:
Step 1: Calculate Your Gain
Your gain is calculated as:
Gain = Sale Price - Original Purchase Price - Allowable Costs
Step 2: Deduct Allowable Costs
You can deduct certain costs from your gain, including:
- Stamp Duty Land Tax paid when purchasing property
- Estate agent and solicitor fees
- Costs of improvements (not repairs or maintenance)
- Stockbroker fees
- Valuation fees for CGT purposes
Step 3: Apply Your Annual Allowance
Subtract your £3,000 annual allowance from your total gains.
Step 4: Determine Your Tax Rate
Add your taxable gains to your income to determine which tax band applies.
📊 Worked Example: Selling a Buy-to-Let Property
Scenario: Sarah (a higher-rate taxpayer) sells a buy-to-let flat in 2024/25.
- ✓ Purchase price (2015): £200,000
- ✓ Sale price: £320,000
- ✓ Stamp Duty paid: £6,000
- ✓ Solicitor fees (purchase): £1,500
- ✓ Solicitor fees (sale): £2,000
- ✓ Estate agent fees: £4,500
- ✓ Kitchen extension (improvement): £15,000
Calculation:
Gain: £320,000 - £200,000 = £120,000
Allowable costs: £6,000 + £1,500 + £2,000 + £4,500 + £15,000 = £29,000
Taxable gain: £120,000 - £29,000 = £91,000
After annual allowance: £91,000 - £3,000 = £88,000
CGT due: £88,000 × 24% = £21,120
Assets Exempt from CGT
Not all asset disposals attract CGT. The following are exempt:
- Your main home (Principal Private Residence Relief)
- ISA investments - all gains within ISAs are tax-free
- Pension funds - no CGT on pension growth
- UK Government gilts and Premium Bond winnings
- Personal possessions worth £6,000 or less each
- Your car (always exempt as a 'wasting asset')
- Gifts to charities or Community Amateur Sports Clubs
- Transfers between spouses or civil partners
- Betting, lottery, and pools winnings
CGT Reliefs and How to Reduce Your Bill
Private Residence Relief (PRR)
Your main home is usually exempt from CGT. However, you may owe some tax if you:
- Let out part of your home
- Used part exclusively for business
- The grounds exceed 5,000 square metres
- You bought it purely to make a profit
Business Asset Disposal Relief (formerly Entrepreneurs' Relief)
If you're selling all or part of a qualifying business, you may pay a reduced rate on gains up to a lifetime limit of £1 million. The rate is currently 10% but will increase to 14% from April 2025 and 18% from April 2026.
Investors' Relief
A 10% CGT rate on gains from shares in unlisted trading companies, with a separate £10 million lifetime limit.
Gift Hold-Over Relief
When gifting business assets or assets into certain trusts, you can defer CGT until the recipient sells.
💡 Legitimate Ways to Reduce CGT
- Use your annual allowance - Consider spreading sales across tax years
- Transfer assets to your spouse - Doubles your annual allowance to £6,000
- Utilise ISAs - Transfer investments into ISAs (called 'Bed and ISA')
- Offset losses - Capital losses reduce taxable gains
- Contribute to pensions - Reduces income, potentially lowering your CGT rate
- Claim all allowable costs - Keep records of improvements and fees
Reporting and Paying Capital Gains Tax
When to Report
The reporting requirements depend on what you've sold:
| Asset Type | Reporting Deadline | Payment Deadline |
|---|---|---|
| UK Residential Property | Within 60 days of completion | Within 60 days of completion |
| Other Assets (shares, etc.) | By 31 January after the tax year | By 31 January after the tax year |
Final Thoughts
Capital Gains Tax can significantly affect the profit you keep when selling assets, but careful planning helps reduce the bill. Make full use of your annual exempt amount, consider transferring assets to a spouse or civil partner to use both allowances, and hold investments in tax-efficient wrappers like ISAs where possible. Because rates, allowances, and reporting deadlines change, always confirm the current rules on GOV.UK or with a tax adviser before completing a sale.