Capital gains tax (CGT) is one of the most commonly misunderstood taxes in the UK. If you sell shares, property (other than your main home), or other assets at a profit, you may owe CGT. This guide explains how it works, how to calculate it, and how to reduce your liability legally.
What Is Capital Gains Tax?
CGT is a tax 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, not the total sale price.
A disposal includes:
- Selling an asset
- Giving it away as a gift
- Transferring it to someone else
- Exchanging it for something else
- Replacing it in a trust
Assets Subject to CGT
The following assets are typically subject to CGT when sold at a profit:
- Shares and investments — including shares held outside an ISA or pension
- Property — second homes, buy-to-let properties, and commercial property
- Cryptocurrency — Bitcoin, Ethereum, and other cryptoassets
- Business assets — including intellectual property and goodwill
- Personal possessions — items worth over £6,000 (excluding your car)
Assets Exempt from CGT
Not everything you sell is subject to CGT. The following are exempt:
- Your main home — private residence relief covers your primary residence
- Cars — all cars are exempt, regardless of profit
- ISAs and pensions — gains within these wrappers are tax-free
- £1,000 personal allowance — a small gains allowance for personal possessions
- Gifts to spouse or civil partner — transfers between spouses are tax-free
- UK government gilts and Premium Bonds — exempt from CGT
- Betting and lottery winnings — not subject to CGT
CGT Rates (2024/25)
The rate you pay depends on your income tax band:
| Tax Band | CGT Rate (Shares & Investments) | CGT Rate (Property) |
|---|---|---|
| Basic rate taxpayer | 18% | 18% |
| Higher rate taxpayer | 24% | 24% |
Your income tax band is determined by your total taxable income (including the gain itself).
Annual Exempt Amount
Every UK resident gets an annual CGT exempt amount. For the 2024/25 tax year, this is £3,000.
If your total gains for the year are below £3,000, you pay no CGT. If your gains exceed £3,000, you only pay CGT on the amount above this threshold.
How to Calculate CGT
The calculation follows these steps:
- Work out your gain: Sale price - Purchase price - Allowable costs
- Apply your annual exemption: Subtract £3,000 from your total gains
- Determine your tax rate: Based on your income tax band
- Calculate the tax: Taxable gain × CGT rate
Allowable costs include:
- Stamp duty and legal fees when buying
- Estate agent and conveyancing fees when selling
- Cost of improvements (not routine maintenance)
- Share dealing commission
You cannot deduct mortgage interest or maintenance costs.
Reporting and Paying CGT
How and when you report depends on what you sold:
Property Sales
You must report and pay CGT on property sales within 60 days of completion. Use the HMRC online real-time CGT service. If you miss the deadline, you may face penalties and interest.
Shares and Other Assets
Report gains in your annual Self Assessment tax return. The deadline for online filing is 31 January following the end of the tax year. You must pay any CGT due by this date too.
Ways to Reduce Your CGT Bill
There are several legitimate strategies to reduce or eliminate CGT:
1. Use Your Annual Exempt Amount Each Year
You cannot carry forward unused annual exemption. Use it or lose it each tax year. Consider crystallising gains up to £3,000 each year.
2. Transfer Assets to Your Spouse or Civil Partner
Transfers between spouses are CGT-free. If one partner is a basic rate taxpayer and the other is higher rate, transferring assets before selling can result in a lower combined tax bill.
3. Offset Losses Against Gains
If you have assets at a loss, consider selling them to crystallise the loss. Losses offset gains in the same tax year. Unused losses can be carried forward indefinitely.
4. Invest Through an ISA
Gains within an ISA are completely tax-free. Use your £20,000 annual ISA allowance to shelter investments from CGT.
5. Business Asset Disposal Relief
If you sell a qualifying business, you pay 10% CGT on the first £1 million of gains ( lifetime limit). This is available to company directors and shareholders with at least 5% of shares and voting rights.
6. Timing Your Sales
Consider selling assets at the start of a new tax year to maximise use of your annual exemption. Spreading sales over multiple tax years can also help.
Worked Example
Sarah sells shares she bought for £30,000 and sells them for £50,000. She pays £500 in transaction fees.
Step 1: Calculate the gain
£50,000 - £30,000 - £500 = £19,500 gain
Step 2: Apply annual exemption
£19,500 - £3,000 = £16,500 taxable gain
Step 3: Calculate CGT
Sarah is a higher rate taxpayer (24% CGT rate):
£16,500 x 24% = £3,960 CGT
If Sarah had sold £3,000 of gains in the previous tax year using her annual exemption, her CGT would have been lower.
Practical Tips
- Use your ISA — shelter as much as possible within your £20,000 annual allowance
- Harvest losses — sell underperforming assets to offset gains elsewhere
- Time your sales — spread disposals across tax years to use multiple annual exemptions
- Transfer to spouse — move assets before selling to use their lower tax rate or annual exemption
- Report on time — property sales must be reported within 60 days or you face penalties
- Keep records — maintain clear records of purchase dates, prices, and costs for at least 6 years
- Consider bed and ISA — sell assets and immediately repurchase within an ISA to reset the cost base