Capital Gains Tax: The Basics

Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of something that has increased in value. It's the gain you make that's taxed, not the total amount you receive. Understanding when CGT applies and how much you might owe is essential for landlords, business owners, and anyone selling valuable assets.

What is Capital Gains Tax?

Capital Gains Tax is charged on the profit — or 'gain' — you make when you sell, give away, or otherwise dispose of an asset that has increased in value since you acquired it. You pay tax on the gain, not the total amount you receive from the sale.

For example, if you bought a buy-to-let property for £150,000 and sold it for £220,000, your gain would be £70,000. It's this £70,000 that might be subject to CGT, not the full £220,000 sale price.

When do you need to pay Capital Gains Tax?

CGT applies when you dispose of assets such as:

• Property that isn't your main home (such as buy-to-let properties or second homes)
• Shares that aren't held in an ISA or PEP
• Business assets
• Personal possessions worth £6,000 or more (excluding your car)
• Cryptoassets such as bitcoin and other cryptocurrencies

You'll need to pay CGT when you sell an asset, give it away (even as a gift), transfer it to someone else, swap it for something else, or receive compensation for it (such as an insurance payout).

Assets exempt from Capital Gains Tax

Not everything is subject to CGT. You don't pay Capital Gains Tax on:

• Your main home (though some conditions apply — see Private Residence Relief)
• ISAs and PEPs
• Personal possessions worth £6,000 or less
• Your car
• Gilts and Premium Bonds
• Betting, lottery, or pools winnings

The annual exempt amount

Each tax year, you have an annual exempt amount — sometimes called the CGT allowance. This is the amount of profit you can make before you need to pay any Capital Gains Tax.

For the 2025/26 tax year, you can make gains up to this threshold without paying CGT. Any gains above this amount will be taxable.

Capital Gains Tax rates

The rate you pay depends on:

• Your total taxable income for the year
• The type of asset you're selling

If you're a basic rate taxpayer (your total taxable income is below the higher rate threshold), you'll pay CGT at a lower rate. If you're a higher or additional rate taxpayer, you'll pay a higher rate.

Different rates apply to residential property compared to other assets like shares or business assets. Residential property generally attracts higher CGT rates than other types of assets.

How to work out your Capital Gains Tax

To calculate your CGT:

1. Work out your gain (sale price minus purchase price and allowable costs)

2. Deduct allowable expenses (such as improvement costs, professional fees, and the costs of buying and selling)

3. Deduct your annual exempt amount

4. Apply the appropriate CGT rate to what remains

Allowable expenses include:

• Costs of buying and selling the asset (such as solicitor fees, estate agent fees, and valuations)
• Improvement costs (but not repairs or maintenance)
• Certain other costs, such as defending your right to the asset

Reporting and paying Capital Gains Tax

If you've sold or disposed of UK residential property, you must report and pay any CGT due within 60 days of completion. This applies even if you have no tax to pay.

For other assets, you report Capital Gains Tax through your Self Assessment tax return if you're already registered for Self Assessment. If you're not registered and need to pay CGT, you'll need to register and complete a tax return.

You can also report and pay CGT on cryptoassets through Self Assessment.

Capital Gains Tax reliefs

Several reliefs can reduce or eliminate your CGT bill:

• Private Residence Relief — reduces or eliminates CGT when you sell your main home
• Business Asset Disposal Relief — reduces the CGT rate on qualifying business disposals
• Investors' Relief — reduces CGT for certain investors in unlisted trading companies
• Incorporation Relief — defers CGT when you transfer a business to a company

These reliefs have specific conditions you must meet to qualify.

Keeping records

You must keep records of all assets you sell, including:

• Purchase date and price
• Sale date and price
• Relevant bills and receipts
• Details of costs of improvements or professional fees

Keep these records for at least one year after the 31 January Self Assessment deadline following the tax year in which you disposed of the asset.

Sources

• Help with Capital Gains on your Self Assessment tax return

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.