Essential guide to Capital Gains Tax
Did you know that the threshold before you have to start paying Capital Gains Tax has halved in the last year? More and more investors are having to consider the tax implications of their investments, and for many, Capital Gains Tax is one of the biggest worries when calculating your tax bill. We explain what it is, how much it costs and when it applies in this no-nonsense guide.
In a nutshell
What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax which you pay to the UK government on the profit - “gains” - you make when you sell something - an “asset” - that has increased in value. Most of the time, this refers to things like shares, bonds, property and other investments.
If you’re investing via an account which is not tax-efficient (i.e. not an ISA), you might have to pay CGT on your total gains that exceed the tax-free allowance. So this includes anyone investing with a General Investment Account (GIA), for example. More on this later.
Tax-free allowance
Allowance for | Annual exempt amount |
Individuals | £3,000 |
Correct as at 2024-25 tax year.
The tax-free allowance for the 2024-25 tax year is £3,000 for individuals. This is half of what it was a year earlier, when the tax-free allowance for individuals was £6,000. So more of us than ever before could have to start paying CGT.
The annual allowance is only £1,500 for trusts. However, the rules around CGT and trusts are complex and highly dependent on your unique circumstances and financial set-up.
We recommend reading the gov.uk website for more guidance or speaking to a qualified financial adviser for further advice. You can start your search for an adviser on our directory here.
How does Capital Gains Tax work?
However, it’s the gain you make when you sell them that’s subject to CGT, not the total amount of money you receive.
Example:
Let’s say you own shares worth £20,000 and you sell them for £28,000 at a later date. You’ve made a gain of £8,000 (£28,000 - £20,000), so you’d have to pay CGT on the amount which exceeds the tax-free allowance. In this case, you have £5,000 of gains over the allowance (£8,000 - £3,000), so you’d be charged CGT on this additional £5,000.
The amount of CGT you have to pay depends on your usual tax bracket - it's 18% for basic rate taxpayers and 24% for higher rate taxpayers. So if you're on the basic rate then you'd have to pay £900 in CGT based on the above scenario. We explain more about the different rates of CGT further down the page.
When do you not have to pay Capital Gains Tax?
There are some circumstances where you don’t have to pay CGT. In most circumstances, you don’t have to pay any CGT when you sell your main home – this is referred to as private residence relief. You also do not have to pay CGT on gifts to your spouse, civil partner or a charity.
You also normally won’t have to pay CGT on assets you sell which are likely to go down in value when you resell them - typically referred to as ‘wasting assets’. These include:
If you’re selling your own business
When you sell your own business, or a percentage of your business, you will have to pay CGT. However, you may only need to pay a fixed rate of 10% due to something called ‘business asset disposal relief’ – previously known as Entrepreneur’s Relief. To quality for this tax relief, both of the following must apply for at least 2 years up to the date you sell all or part of your business:
Be a sole trader or business partner
Have owned your business for at least two years
You can read more about business asset disposal relief on the gov.uk website here.
If you’re selling overseas assets
You may still have to pay CGT even if the assets you’re selling are overseas. There are special rules if you’re a UK resident but your permanent home is not in the UK. This can get a bit complex and is highly dependent on your unique circumstances so we recommend you read the government’s official guidance here.
If you’re abroad
You have to pay CGT on gains you make on selling property and land in the UK even if you’re anon-resident for tax purposes. However, you do not pay CGT on other UK assets - for example, shares in UK companies - unless you return to the UK within 5 years of initially leaving.
When someone dies
When someone dies, Inheritance Tax is usually paid on the deceased person's estate. If you’re a beneficiary and you receive some assets from them, you only need to pay CGT if you go onto sell that asset at a later date. You can read more about how Inheritance Tax works in our full guide here.
Capital Gains Tax rates explained
The rate of CGT that you have to pay differs depending on your usual tax band and what type of asset or investment you’re selling. The CGT rate on residential property, for instance, is higher than the CGT rate that you’d have to pay on shares in a General Investment Account.
Below is a table which summarises the rate of CGT you can expect to pay on different types of asset depending on your usual tax band:
Capital Gains Tax rates
Type of asset | Basic rate | Higher rate |
Shares | 18% | 24% |
Residential property | 18% | 24% |
Bitcoin/Cryptocurrency | 18% | 24% |
Other | 18% | 24% |
Correct as at 2024-25 tax year.
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