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Capital Gains Tax explained
What is Capital Gains Tax?
Capital Gains is the profit you make when something you own goes up in value. You only pay tax on the gain, not the full sale amount.
You may need to pay CGT when you sell or give away things like:
- Personal items worth £6,000 or more (not including your car unless it’s used for business)
- Property you own, such as buy‑to‑let homes or business property
- Shares or investment funds held outside an ISA or pension. Explore how funds work
- Business assets, including land, equipment or trademarks.
What is the Capital Gains Tax allowance?
Each tax year you get a Capital Gains Tax allowance, sometimes called the annual exempt amount (AEA).
If your total gains for the year are below the allowance, you won’t normally pay Capital Gains Tax. If they’re over the allowance, you’ll only pay tax on the amount above it.
Allowance for the current tax year.
- £3,000 for individuals.
- £1,500 for trusts.
You can’t carry over any unused allowance, so it’s worth using it each tax year. You can find out about Capital Gains Tax on the GOV.UK website.
Capital Gains Tax rates for the current tax year
The amount of Capital Gains Tax you pay depends on your income tax band.
If your income and gains stay within the basic-rate band, you’ll usually pay 18%.
If they push you into the higher or additional-rate band, you’ll pay 24% on the amount above that threshold.
Source: GOV.UK website.
How to work out your Capital Gains Tax
To calculate your Capital Gains Tax, you’ll need:
- what the asset was worth when you bought or received it
- what it was worth when you sold or disposed of it
- your Capital Gains Tax allowance
- your income tax band.
Steps to work out CGT
- Work out your gain (sale value minus what you paid).
- Subtract your allowance.
- Apply the CGT rate that matches your income tax band.
Example
If you made a £10,000 gain:
- £3,000 is covered by your allowance
- £7,000 is taxable.
Basic‑rate taxpayer: 18% = £1,260.
Higher/additional‑rate taxpayer: 24% = £1,680.
When you need to pay Capital Gains Tax
You’ll usually report and pay Capital Gains Tax through HMRC’s online service or your self‑assessment tax return.
For example, if you sold an investment in May 2025, you’d need to report it by 31 January 2027.
Capital Gains Tax on property
The rules are different for residential property. If you sell a UK home or other residential property, you’ll normally need to report and pay CGT within 60 days of completion.
How to pay Capital Gains Tax
Once you report your gain, HMRC will give you a Capital Gains payment reference (a 14 character code starting with "X").
You can then pay by:
- bank transfer
- cheque.
When you won’t pay UK Capital Gains Tax
Some assets are tax-efficient and may reduce or remove Capital Gains Tax.
- ISAs. There is no CGT on ISA investments.
- Pensions. pension investments aren’t subject to CGT.
- UK gilts and Premium Bonds.
- Betting and lottery winnings.
- Gifts to a spouse, civil partner or charity.
- Inheritance. CGT normally only applies if you later sell the inherited asset.
Capital Gains Tax if you live abroad
You may not pay UK Capital Gains Tax if you’re not a UK resident, unless:
- you return to the UK within 5 years, or
- you sell shares in a UK property rich company.
In these cases, CGT may still apply.
Ways to help reduce Capital Gains Tax
You may be able to reduce your bill by:
- transferring assets to a spouse or civil partner
- using tax-efficient investments like ISAs or pensions
- increasing pension contributions
- donating to charity
- reporting capital losses to offset gains.
Tax-efficient investments
We offer a range of tax-efficient ways to invest.
Investing options
- Ready-Made Investments.
- Share dealing.
- Self invested personal pensions.
Investing for longer increases the likelihood of positive returns. Over a period of 5 years or more, investments usually give you a higher return compared to cash savings. But investments can go down as well as up in value, so you could get back less than you put in. Tax treatment depends on individual circumstances and may be subject to change in the future.
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