Capital Gains Tax (CGT) is a tax on the profit (gain) made when selling or disposing of an asset that has increased in value. It applies to assets such as property, shares, businesses, and valuable possessions.
1. What is taxed under CGT?
You may need to pay CGT when you sell or dispose of:
- Property (excluding your main home)
- Shares & investments (outside ISAs & pensions)
- Businesses (if sold for a profit)
- Cryptocurrency (Bitcoin, Ethereum, etc.)
- Valuable possessions worth over £6,000 (e.g., art, antiques, jewellery)
You DON’T pay CGT on:
- Your main home (if you meet the Private Residence Relief criteria)
- ISAs and pensions (tax-free growth)
- Lottery winnings and gifts to spouses/civil partners
2. Capital Gains Tax allowance (2024/25)
Everyone has a tax-free CGT allowance of £3,000 per year.
- If your total gains are below £3,000, you don’t pay any CGT.
- If your total gains exceed £3,000, you pay tax only on the excess.
Tip: Spouses can transfer assets to each other tax-free, effectively doubling their CGT allowance to £6,000.
3. Capital Gains Tax rates (2024/25)
CGT rates depend on your income tax band and the type of asset sold. Gains from 30 October 2024 onwards, you’ll pay:
Basic Rate Taxpayer (Income ≤ £50,270)
If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets. For any amount above the basic Income Tax band, you’ll pay 24% on gains made from 30 October 2024 (or 28% on carried interest). For gains made between 6 April 2024 and 29 October 2024, you’ll pay 20% (or 24% on residential property and 28% on carried interest).
Example: If you are a basic-rate taxpayer and sell shares for a £10,000 gain on or after 30 October 2024:
- £3,000 is tax-free (CGT allowance).
- £7,000 is taxed at 18% = £1,260 CGT bill.
Higher/Additional Rate Taxpayer (Income > £50,270)
Gains from 30 October 2024 onwards, you’ll pay:
- 24% on your gains from residential property
- 28% on your gains from ‘carried interest’ if you manage an investment fund
- 24% on your gains from other chargeable assets
Gains between 6 April 2024 to 29 October 2024, you’ll pay:
- 24% on your gains from residential property
- 28% on your gains from ‘carried interest’ if you manage an investment fund
- 20% on your gains from other chargeable assets
4. How to reduce Capital Gains Tax
- Use CGT allowance (£3,000) – sell assets in stages across multiple tax years to stay below the CGT limit.
- Transfer assets to spouse – transfers between married couples or civil partners are tax-free, effectively doubling your allowance to £6,000.
- Invest in ISAs & pensions – shares in ISAs & pensions are exempt from CGT, so investing through these accounts can avoid CGT entirely.
- Claim Private Residence Relief (Property) – if selling your main home, you usually don’t pay CGT, as long as you meet HMRC’s rules.
- Offset losses – if you sell an asset at a loss, you can offset it against future capital gains to reduce CGT liability.
Tip: Keep a record of all purchases, sales, and costs related to your assets to minimize CGT legally.
5. How to report and pay CGT
- If selling property, report gains to HMRC within 60 days of sale.
- For other assets, report CGT through Self-Assessment (by 31st January).
- Use HMRC’s Capital Gains Tax calculator to estimate your tax bill. View the following link: https://www.gov.uk/guidance/hmrc-tools-and-calculators
Tip: If you make regular investments or trade assets frequently, consider tax-efficient strategies like ISAs, pension contributions, or using spouse allowances.
For details on CGT, please view this link: https://www.gov.uk/capital-gains-tax/rates
Understanding Capital Gains Tax helps you legally reduce tax liabilities and maximise your profits. Would you like help with personalised CGT-saving strategies for your investments? If so, you can book a free consultation with one of our Financial Advisers to see how we can help you.
Disclaimer
This article is for information only. Please do not act based on anything you might read in this article. Past performance is not a reliable indicator of current or future returns. This article contains general information only and does not consider individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy to any person in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it would be unlawful to market such an offer or solicitation.