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What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax you pay on the profit you make when you sell or dispose of an asset that has increased in value. You only pay tax on the gain itself, not on the total amount you receive, and only if your total gains for the year exceed your tax-free allowance....

Capital Gains Tax (CGT) is a tax you pay on the profit you make when you sell or dispose of an asset that has increased in value. You only pay tax on the gain itself, not on the total amount you receive, and only if your total gains for the year exceed your tax-free allowance. Understanding when CGT applies can save you from unexpected tax bills when selling property, shares, or valuable possessions.

What is Capital Gains Tax?

Capital Gains Tax is charged on the profit (the 'gain') you make when you dispose of an asset that has gone up in value. The key point is that you're taxed on your gain, not on the full sale price.

For example, if you bought a painting for £5,000 and sold it later for £25,000, your gain is £20,000 (£25,000 minus £5,000). It's this £20,000 that could be subject to Capital Gains Tax, not the full £25,000 you received.

What counts as 'disposing of' an asset?

Disposing of an asset isn't just about selling it. For Capital Gains Tax purposes, disposal includes:

  • Selling it
  • Giving it away as a gift or transferring it to someone else
  • Swapping it for something else
  • Getting compensation for it, such as an insurance payout if it's been lost or destroyed

Which assets do you pay Capital Gains Tax on?

You pay Capital Gains Tax on the gain when you dispose of:

  • Most personal possessions worth £6,000 or more (but not your car)
  • Property that isn't your main home, such as buy-to-let properties or second homes
  • Your main home in certain circumstances, such as if you've let it out, used part of 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.

What you don't pay Capital Gains Tax on

Several assets are exempt from Capital Gains Tax. You don't pay it on gains from:

  • Your car
  • ISAs or PEPs
  • UK government gilts and Premium Bonds
  • Betting, lottery or pools winnings
  • Carried interest (from 6 April 2026 onwards, when it will be taxed as income instead)

The tax-free allowance

You only pay Capital Gains Tax if your total taxable gains for the tax year exceed your tax-free allowance, known as the Annual Exempt Amount.

The Capital Gains Tax allowance is:

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

The tax year runs from 6 April to 5 April the following year. For the 2025/26 tax year, you can make gains up to £3,000 without paying any Capital Gains Tax.

Special rules for gifts to spouses and charities

Gifts to your spouse or civil partner

You don't pay Capital Gains Tax on assets you give or sell to your husband, wife or civil partner, with two exceptions:

  • You separated and did not live together at all during that tax year
  • You gave them goods for their business to sell on

If your spouse or civil partner later sells the asset, they may have to pay tax. Their gain will be calculated based on the difference between what you originally paid for the asset and what they eventually sold it for.

Gifts to charity

You don't pay Capital Gains Tax on assets you give away to charity. However, you may have to pay if you sell an asset to charity for more than you paid for it but less than its market value. In this case, you work out your gain using the amount the charity actually pays you.

When you inherit assets

When you inherit an asset, Inheritance Tax is paid by the estate of the person who died, not by you. You only need to consider Capital Gains Tax if you later dispose of the asset you've inherited.

Do you need to pay?

To work out if you need to pay Capital Gains Tax:

1. Calculate the gain for each asset you've disposed of during the tax year

2. Add together all your gains

3. Deduct any allowable losses

If your total taxable gains are above £3,000 (for the 2025/26 tax year), you'll need to report and pay Capital Gains Tax.

Even if your gains are below the £3,000 allowance, you may still need to report them if you're registered for Self Assessment and the total amount you sold the assets for was more than £50,000.

Overseas and non-resident situations

If you're a UK resident, you may have to pay Capital Gains Tax even on overseas assets. There are special rules if you're UK resident but your permanent home is not in the UK.

If you're non-resident for tax purposes, you still have to pay tax on gains from UK property and land. You don't pay Capital Gains Tax on other UK assets like shares in UK companies, unless you return to the UK within 5 years of leaving or you sell shares in a company that is 'UK property rich' (where 75% or more of the company's gross asset value is UK land).

Sources

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

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