A complete guide to Capital Gains Tax in the UK

If you’re not familiar with capital gains tax (CGT), then a liability that’s due is probably coming as quite a shock when you didn’t even realise you would be taxed in the first place. For those who are aware, you may instead be seeking out solutions to help you minimise your tax liability. This complete guide to CGT aims to answer all your questions so you can understand when CGT is charged, at how much, what you need to do about it, and what you can do about it to reduce your tax bill.

What is capital gains tax (CGT)?

CGT is a tax in the UK which is charged on gains made when you dispose of a qualifying asset. That is the very “technical” definition but to explain further, what this means is that when you make a profit from a valuable asset you once owned (tangible or intangible) then you’ll be subject to CGT. The term disposal is used because it does not simply mean when you sell an item and make a monetary gain from it. It also includes when you give away an asset for free as a gift to someone or exchange your asset for something else but your original asset has increased in value. A disposal therefore describes the event of when you no longer own the asset. 

So, what does a qualifying asset mean?

Not every possession you own will be subject to CGT. Indeed, many second-hand items are unlikely to increase in value when you sell, give away, or exchange them. Most physical items worth £6,000 or more are considered to be qualifying assets and they’re often referred to as chattels (tangible possessions which are easily transportable). Examples of these include jewellery, antiques, collectables, fine wines that have a shelf life of 50 years or more, or items of plant or machinery that are not fixed to a building. Much larger tangible objects that will be subject to CGT are things such as land and property. Intangible assets can also be subject to CGT, and these do not have to be worth £6,000 or more. They are things such as stocks and shares, patents, trademarks, copyrights, franchises, licences, cryptoassets, domain names (where they are bought and sold intentionally for profit) etc.   

What is exempt from capital gains tax?

It’s also good to know that many personal possessions which are valuable are exempt from CGT and therefore will not be taxed even where you make a gain from them. This includes privately owned cars (unless you have used your car for your business) and your own personal home that you live in as your main residence. Other assets which are not subject to CGT include things like lottery winnings, cash, stocks and shares held in ISA accounts or shares that qualify under special tax schemes such as the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS). Furthermore, any disposal made to a married spouse, civil partner, or UK-registered charitable organisation are exempt from CGT.

How does capital gains tax work in the UK?

You only incur CGT in the UK where you make a qualifying disposal which results in a gain. This means that in order to receive a tax bill, your original asset must have increased in value from when you first acquired it. Importantly, CGT only applies to the gain amount (the difference between the new value and the original value at the date of acquisition), not the entire value at the point of disposal. So, for example, if you purchase shares for £1,000 and sell them later for £7,500, CGT at your applicable rate would only be applied to the difference of £6,500.

What are the capital gains tax rates?

Prior to October 2024, there were different rates depending on the type of asset you disposed of. Property which did not include your own primary residence was charged at 18% and 24% (determined by your income tax band) whilst all other types of qualifying asset would be charged at 10% and 20% (again, determined by your income tax band). However, since Chancellor Rachel Reeves’ budget, the rates have been aligned to be the same no matter the type of asset and only different depending on your income tax band. For the current 2025/26 tax year the CGT rates are:

• 18% for gains within the basic rate income band
• 24% for gains over the basic rate income band
• 32% for carried interest gains*

* carried interest is a share of the profits that investment fund managers receive as part of their remuneration that is taxed as capital gains at its own specific rate rather than as income.

If your annual income, including the gain you made on your disposal, falls within the basic rate income tax threshold of £50,270 then your entire gain is chargeable at 18%. However, where your gain pushes your total annual income to above the basic rate income threshold, then the excess amount is charged at 24%. In practice, this means a single gain can be split across both rates. Where you are already a higher or additional rate income taxpayer based solely on your income, then your entire gain will be subject to 24%.

Are there any allowances or exemptions?

When it comes to understanding CGT, it’s important to remember to make use of your annual allowance or potential exemptions to reduce your tax bill. Every individual is entitled to an annual CGT allowance (called the Annual Exempt Amount) which for the 2025/26 tax year is £3,000. It means you can make up to £3,000 in capital gains in a tax year without being required to pay any taxes on it. Note that you must still report the gain, even if it falls within the allowed amount, and that if you do not use it one year, you’re unable to carry it forward to use in the following year.

In addition to this annual allowance, there is also the spousal exemption rule which you may be able to take advantage of. Any transfer of assets between married couples and civil partners are tax-free, with no limits on value. This therefore can provide valuable tax planning opportunities. For example, one effective strategy to reduce your CGT bill could be to transfer an asset to your spouse or partner to dispose of if you have already fully utilised your own annual allowance as it thereby uses another individual’s allowance.

How to calculate capital gains tax

To explain how you would calculate your CGT bill, we’ll assume a scenario where you have sold an asset. You can use the formula:

1. Sale price – original purchase price – allowable costs = gain
2. Gain – annual allowance (£3,000) = taxable gain
3. Taxable gain x CGT rate = CGT liability due

When it comes to calculating CGT, you’re allowed to account for certain expenditure that may have been additional to what you had to pay to acquire the asset. For example, if you purchase shares in a tech company, you may have had to pay a brokerage fee as well. This cost can be added onto what you paid for the actual shares before determining your gain. Bear in mind that not all costs associated may be allowable so it’s always best to check with an accountant first.

Once you have determined your gain, you’re able to reduce this by the annual allowance if you have not utilised it or fully utilised the entire amount. The remaining amount is then multiplied by your applicable CGT rate which will require you to check which income tax band you will fall into once you have included your gain in addition to your salary. You may be eligible for certain tax reliefs that will reduce your CGT rate where you qualify. These tax reliefs are discussed in more detail in the next section below.

Examples of CGT calculations

To illustrate how to calculate CGT, we’ll provide a couple of examples based on simple scenarios:

1. Your taxable salary is £35,000 which puts you in the basic income tax bracket. You sell an antique crystal chandelier to your friend and make a £5,000 gain. You have not used your annual exemption so can deduct £3,000 from your gain, leaving £2,000 liable to CGT. In total, your annual income plus gains would be £37,000, which keeps you within the basic rate tax band of £37,700. Your gain is therefore subject to the 18% CGT rate, making your CGT bill £360.
   
   
2. Your taxable salary is £35,000 which again places you in the basic income tax bracket. This time, you sell shares in a listed company and make a £20,000 gain. After applying your £3,000 annual exemption, you are left with £17,000 liable to CGT. Adding this to your income brings your total to £52,000, which takes you above the basic rate threshold. The first £2,700 of your gain sits within the basic rate band and is taxed at 18%, giving a bill of £486. The remaining £14,300 falls into the higher rate band and is taxed at 24%, giving a bill of £3,432. In total, your CGT liability is £3,918.
   
   
3. Your taxable salary is £65,000, which already places you in the higher income tax bracket. You sell a collection of rare wine and make a £10,000 gain. After applying your £3,000 annual exemption, you are left with £7,000 liable to CGT. Since your income is already above the basic rate threshold of £37,700, the whole of your taxable gain falls into the higher rate band. Your entire gain is therefore taxed at 24%, making your CGT bill £1,680.

An important detail to point out here is the basic rate threshold. When it comes to income tax, you may be aware that the basic rate threshold goes to £50,270, but this also includes the personal allowance of £12,570. When we’re calculating CGT, you cannot take into consideration the personal allowance as this is only for income tax and not gains. This explains why the CGT threshold is £37,700.

How to reduce your capital gains tax liability

For many of our clients, CGT becomes a regular tax occurrence, not dissimilar to income tax. When this is the case, understandably the primary goal becomes seeking out solutions to minimise the tax bill whenever possible. Luckily, there are many tax strategies that can be put into place to suit an array of personal circumstances and situations. To get started, we’d recommend visiting our article on  10 ways to reduce capital gains tax which highlights different ways you can extend your basic rate threshold as well as introduce opportunities for tax-free gains.

For those with business investments, it’s well worth exploring our article on Investors’ Relief (IR) as it offers an attractive 14% CGT rate on eligible disposals but only up until April 2026 when it’s due to increase to 18% (which arguably is still a more favourable rate for those subject to the higher and additional income tax rates).

Of course, as we’ve explained at the start, CGT does not only arise when assets are sold for a gain. It can affect many who are simply gifting valuable assets to loved ones. When it comes to succession planning for family businesses, CGT can be challenging to navigate. Holdover relief can be the solution in many cases where you’re looking to pass on your business to children or other family members. 

What you need to do for capital gains tax reporting

Understanding how to report your CGT, when to report it, as well as when you will need to pay CGT by is just as important as knowing how much you need to pay. This is because HMRC has strict deadline rules and missing them can lead to penalties and interest.

For standard assets (anything subject to CGT with the exception of residential property) you gain can be reported through HRMC’s real time submission portal. This is only available to you if you are not already registered for self-assessment and the proceeds from your disposal (not the gain but the entire sum) is no more than £50,000. If this does not apply, then you will have to complete your CGT reporting through your self-assessment or register for your personal tax return in order to do so.

If completing through a self-assessment tax return, be sure to complete the capital gains summary pages (SA108 form). This must be filed with HMRC by the 31^st January following the end of the tax year in which you made the disposal. For example, you sell gold bullion in August 2025 (the 2025/26 tax year) which means the gain must be reported in your self-assessment tax return that is due by 31^st January 2027.

When it comes to residential property, there are different rules and deadlines. If you dispose of a property that is not your main home — such as a second home, a furnished-holiday-let, a buy-to-let investment, or a property you have inherited and then sold — you must report the disposal and pay any CGT owed within 60 days of completion. This should be completed through HMRC’s dedicated form for residential property disposals.

If you normally file a self assessment tax return, then your CGT should also be reported on that although the tax will not have to be paid again come 31^st January – it simply needs to be included. If you do not ordinarily submit a personal tax return and this is your sole disposal for the year, and all other income is taxed through PAYE then you will not have to register for self-assessment unless HMRC writes instructing you to do so.

Be aware that even if you make no gain from your asset disposals, you may still have report these disposals to HMRC through a self-assessment tax return or the 60-day CGT return if it is a residential property. In fact, where you make a loss, it is certainly in your interest to do so as it will enable you to carry your loss forwards to future disposals (we’ll go into this in more detail in the section further below).

What are the penalties for late CGT submissions?

HMRC issues heavy penalties when it comes to late CGT reporting as well as late payment of any tax due. In fact, even where no tax is owed but a disposal was made, HMRC can issue penalties for failure to report on time.

Late filing penalties are automatically issued for both reporting through the self-assessment tax return process and the 60-day reporting requirement and are as follows:

• If your return is up to 3 months late, you will be fined £100.
• If it is still not filed after 3 months, daily penalties of £10 are charged for up to 90 days (up to £900).
• If your return is more than 6 months late, you will be fined the higher of £300 or 5% of the tax due.
• If your return is more than 12 months late, another penalty of £300 or 5% of the tax due applies. In serious cases where HMRC believes you deliberately withheld information, penalties can be even higher.

Late payment penalties can be added on top of late filing, again for both the self-assessment tax return process and the 60-day reporting requirement. These are as follows:

• 5% of the unpaid tax if it is still outstanding 30 days after the deadline.
• Another 5% if the tax is still unpaid 6 months after the deadline.
• A further 5% if it is unpaid 12 months after the deadline.

In addition to the penalties, HMRC charges interest on overdue tax. The rate is the Bank of England base rate plus 4%, and it accrues daily until the bill is fully paid.

What to do if you make a loss from your capital disposal

As we all know, there are never guarantees when it comes to investments. There may certainly be times when our assets depreciate, but the positive spin on this is that it can at times work out in your favour. Where you dispose of an asset for less than what it was worth when you acquired it, this is what is referred to as a capital loss. Capital losses can be offset against your gains to reduce your CGT bill but only if you report it.

Once you have reported a capital loss to HMRC your loss will automatically be offset against any gain made in the same tax year. If there is no gain or the gain is less than your total losses, any unused portion will be carried forwards indefinitely until fully exhausted. Capital losses cannot be offset against income tax unless covered by very specific tax relief schemes such as SEIS or EIS.

Get help with your capital gains tax

Whether you need help calculating your capital gains tax, completing the CGT report, or tax planning around high value disposals to minimise your CGT bill, our team of experts are on hand to provide the support and solutions you need to keep more of your gains. Get in touch with us today through the online form or give us a call to meet our team and explore our range of services tailored to help you achieve your personal and financial goals.