Do I Need to Pay Capital Gains Tax?

Introduction

Whether you need to pay Capital Gains Tax depends on three key questions: what you've sold, how much profit you've made, and whether that profit exceeds your tax-free allowance. This article walks you through the decision-making process to help you work out if you owe Capital Gains Tax when you dispose of an asset.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the profit you make when you sell or dispose of an asset that has increased in value. It's the gain that's taxed, not the total amount you receive.

For example, if you bought a painting for £5,000 and sold it for £25,000, your gain is £20,000 (£25,000 minus £5,000). You would only pay Capital Gains Tax on that £20,000 profit, and only if it exceeds your annual tax-free allowance.

What counts as 'disposing' of an asset?

Disposal doesn't just mean selling. You dispose of an asset when you:

• Sell it
• Give it away as a gift or transfer it to someone else
• Swap it for something else
• Receive compensation for it (such as an insurance payout if it's been lost or destroyed)

Which assets are subject to Capital Gains Tax?

You pay Capital Gains Tax on gains when you dispose of:

• Personal possessions worth £6,000 or more (but not your car)
• Property that's not your main home
• Your main home if you've let it out, used it for business, or it's very large
• Shares that are not held in an ISA or PEP
• Business assets
• Cryptoassets like cryptocurrency or bitcoin

These are known as 'chargeable assets'. If you own an asset jointly with someone else, you pay Capital Gains Tax on your share of the gain.

When you don't pay Capital Gains Tax

Tax-free allowance

You only pay Capital Gains Tax on total gains above your annual tax-free allowance (called the Annual Exempt Amount). For the 2025/26 tax year, this allowance is:

• £3,000 for individuals
• £1,500 for trusts

If all your gains in a tax year fall below this threshold, you have no Capital Gains Tax to pay.

Assets exempt from Capital Gains Tax

You don't pay Capital Gains Tax on gains from:

• Assets held in ISAs or PEPs
• UK government gilts and Premium Bonds
• Your car
• Betting, lottery, or pools winnings
• Carried interest (from 6 April 2026 onwards)

Gifts to spouses, civil partners, and charities

You don't pay Capital Gains Tax on assets you give or sell to your husband, wife, or civil partner, unless you separated and didn't live together at all during that tax year, or you gave them goods for their business to sell on.

You also don't pay Capital Gains Tax on assets you give away to charity. However, if you sell an asset to charity for more than you paid for it but less than its market value, you may have to pay tax on the difference.

When someone dies

When you inherit an asset, Inheritance Tax is usually paid by the deceased person's estate. You only need to work out if you owe Capital Gains Tax if you later dispose of that inherited asset.

Overseas and non-resident considerations

If you're a UK resident with overseas assets

You may have to pay Capital Gains Tax on overseas assets. Special rules apply if you're a UK resident but your permanent home is not in the UK.

If you're non-resident

You must pay Capital Gains Tax on gains from UK property and land even if you're non-resident for tax purposes.

You don't pay Capital Gains Tax on other UK assets (such as shares in UK companies) unless:

• You return to the UK within 5 years of leaving
• You sell shares in a company that is 'UK property rich' (where 75% or more of the gross asset value is UK land) and you meet the conditions for an indirect disposal

Working out if you need to pay

Follow these steps to determine whether you owe Capital Gains Tax:

Step 1: Work out the gain for each asset you've disposed of during the tax year (6 April to 5 April). If you jointly own an asset, calculate your share of the gain.

Step 2: Add together the gains from all assets.

Step 3: Deduct any allowable losses you've made.

Step 4: Compare your total taxable gains to your annual allowance (£3,000 for individuals in 2025/26).

If your total taxable gains are above your allowance, you need to report and pay Capital Gains Tax. If they're below the allowance, you don't have to pay, though you may still need to report the disposal in certain circumstances.

When you must report even if you don't owe tax

If you're registered for Self Assessment and your total gains are below your tax-free allowance, you still need to report your gains in your tax return if the total amount you sold the assets for was more than £50,000 (for the 2023 to 2024 tax year onwards).

For UK residential property sales where you have tax to pay, you must report and pay using a Capital Gains Tax on UK property account.

Reducing your tax bill

Depending on the asset you've disposed of, you may be able to reduce your Capital Gains Tax bill by:

• Deducting allowable losses from previous tax years
• Claiming tax reliefs specific to certain types of assets

Keep records of what you paid for assets, as you (or your spouse or civil partner if you transfer the asset to them) will need this information to calculate any future gains.

Sources

• Capital Gains Tax: what you pay it on, rates and allowances

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