Capital Gains Tax (CGT) applies when you make a profit after you sell or dispose of an asset. However, CGT only applies to the gain, not the total amount you receive.
For example: You buy a painting for £5,000. Later you sell it for £25,000. You have made a £20,000 gain. CGT applies to this £20,000 profit.
Moreover, this can apply to property, shares and valuables. It can also apply when you give something away.
What Counts as “Disposing” of an Asset?
People associate Capital Gains Tax with selling. However, HMRC treats several actions as a disposal.
You dispose of an asset when you:
- Sell it
- Give it away as a gift
- Transfer it to someone else
- Swap it for another asset
- Receive compensation for it (such as an insurance pay-out after loss or damage)
Therefore, you should consider CGT whenever you part with an asset. Even if no money changes hands, CGT can still apply.
What Assets Can Trigger Capital Gains Tax?
HMRC calls taxable items chargeable assets. You may need to pay Capital Gains Tax when you dispose of:
- Most personal possessions worth £6,000 or more (not including your car)
- Property that is not your main home
- Your main home (if you let it out, use it exclusively for business or own very large grounds)
- Shares that you do not hold in an Individual Savings Account (ISA) or Personal Equity Plan (PEP)
- Business assets
You should also consider Chattels. These include antiques, jewellery, artwork and collectibles. If they exceed the £6,000 limit, CGT may apply.
If you own an asset jointly, you calculate your share of the gain. Then you pay CGT only on your share.
Capital Gains Tax and Property
Property often creates the largest Capital Gains Tax bills. Therefore, you should understand the rules before you sell.
You may pay CGT when you sell:
- A buy-to-let property
- A holiday home
- A second home
- A inherited property that you do not use as your main residence
- Land or business premises
You usually avoid CGT on your main home if:
- You lived in it as your main residence throughout ownership
- You did not let out part of it (other than to a lodger)
- You did not use part of it exclusively for business
- The grounds measure less than 5,000 square metres
If you let the property out at any stage, CGT may apply to part of the gain. Therefore, you should review your position before exchanging contracts.
When Do You Not Pay Capital Gains Tax?
You only pay Capital Gains Tax when your total gains exceed your tax-free Annual Allowance. As a result, smaller gains often remain tax-free.
You also usually avoid CGT when you:
- Transfer assets to your spouse or civil partner during a tax year in which you live together
- Give assets to a register charity
However, separation can change the position. Additionally, you cannot claim losses on most transfers to a spouse or civil partner.
CGT does not apply at the point of inheritance. Instead, you may face CGT later if you sell the inherited asset.
Usually Exempt Assets
Certain gains fall outside of Capital Gains Tax rules altogether. For instance, you do not pay CGT on gains from:
- ISAs or PEPs
- UK Government gilts and Premium Bonds
- Betting, lottery or pools winnings
You also do not usually pay CGT when you sell your only or main home. Private Residence Relief often removes the gain from tax. However, letting part of the property or using it exclusively for business can reduce that relief.
Most private cars also remain exempt. However, business use can affect the position.
Capital Gains Tax Allowance for 2025/26
The tax year runs from 6 April to 5 April.
For the 2025/26 tax year, the Annual Exempt Amount equals:
- £3,000 for individuals
- £1,500 for trusts
If you own assets jointly, each person can use their own allowance. As a result, couples can often use two allowances on one disposal.
You can also transfer assets between spouses or civil partners without triggering CGT. This can help you use two allowances. However, a later sale may still create a tax bill.
You cannot carry forward unused allowance into the next tax year.
How to Calculate Your Taxable Gain
1. Work Out the Gain
Start with the sale proceeds and then subtract the original purchase price.
2. Deduct Allowable Costs
You can usually deduct:
- Solicitor and estate agent fees
- Stamp Duty linked to the purchase
- Professional valuation fees
- Improvement costs that add value (such as an extension)
You cannot deduct routine maintenance or decoration costs.
3. Deduct Capital Losses
If you made a loss on another chargeable asset, you can normally offset it against gains.
4. Apply the Annual Allowance
Finally, subtract your £3,000 allowance. You pay Capital Gains Tax on the remaining amount.
Capital Gains Tax Rates for 2025/26
Capital Gains Tax rates depend on:
- Your taxable income
- The size of your gain
- The type of asset
From 6 April 2025, individuals generally pay:
- 18% on gains within the Basic Rate band
- 24% on gains above the Basic Rate band
- 32% on carried interest gains
In practice, you add your taxable gain to your taxable income. Then you check how much falls within the Base Rate band. You charge the remaining portion at the Higher Rate.
As a result, one gain can attract two different CGT rates.
Reporting and Paying Capital Gains Tax
HMRC does not send a Capital Gains Tax bill. You must calculate the tax, report it and pay it yourself.
Selling UK Residential Property
If you sell UK residential property and owe CGT, you must report and pay through a Capital Gains Tax on UK property account.
You must report and pay within:
- 60 days of completion for sales on or after 27 October 2021
- 30 days of completion for sales between 6 April 2020 and 26 October 2021
You may still need to include the gain in your Self Assessment tax return. Do not wait until your annual tax return. Late reporting can trigger penalties and interest.
Selling Other Assets
You usually report other gains through Self Assessment. You pay by the standard 31 January deadline following the end of the tax year.
If your total sale proceeds exceed £50,000 in a tax year, you may need to report the gain even if it falls within your allowance. You should also report capital losses. Doing so allows you to use them in future years.
Overseas Assets and Non-Residents
Capital Gains Tax can apply to overseas assets if you live in the UK.
If you do not live in the UK, you must still report sales of UK property or land. Additionally, special rules may apply if you return to the UK within five years.
If your permanent home resides outside the UK, more additional rules may apply. In these cases, you should seek professional advice.
Using Losses to Reduce Your Tax Bill
Capital losses can reduce your overall tax bill. First, offset losses against gains in the same tax year. Then, carry forward unused losses to future years.
You should report losses even if you owe no Capital Gains Tax. This step preserves them for later use. However, you cannot usually claim losses on disposals to a spouse or civil partner. Connected person rules can also restrict claims.
If an asset becomes worthless, you may claim a negligible value loss. You must follow HMRC’s conditions carefully.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.