Capital Gains Tax applies to people who sell their property and get more money than they paid for it. HMRC levies capital gains tax on them.
Many people assume that selling something valuable means paying tax on the full amount received. In reality, Capital Gains Tax only applies to the profit you make, not the total sale price, and several allowances and exemptions may reduce or completely remove your tax liability.
This guide breaks it down the way we would in a client meeting. No fluff, no legal speak. Just what CGT actually is, what you can claim, and how to file it so you don’t overpay or miss a deadline.
What is Capital Gains Tax
Capital Gains Tax is a tax on profits you make while you are disposing of your asset. Dispose means more than just selling. It includes gifting an asset to someone who isn’t your spouse or civil partner, swapping it for something else, or receiving compensation for it, like an insurance payout after a loss.
CGT doesn’t apply to everything you own. Your car is exempt. Money in your bank account is exempt. Gains made inside an ISA, a pension, or from Premium Bonds are also tax-free. The assets that most commonly trigger CGT are:
- Property that isn’t your main home, such as a second home, buy-to-let, or land
- Shares and investments held outside an ISA or pension
- Business assets, if you sell your business or part of it
- Personal possessions worth £6,000 or more, excluding your car
You only pay tax on the gain, not the total amount you receive. If you bought shares for £ 10,000 and sold them for £ 15,000, your gain is £5,000. CGT applies only to that £5,000 profit.
Your Annual Exempt Amount
Before you worry about rates, check if you even need to pay. Everyone gets an annual exempt amount. For the 2025/26 tax year, that amount is £3,000 for individuals.
If your total gains in a tax year are below £3,000, you don’t owe any Capital Gains Tax. But there’s one catch: if your total sale proceeds are over £50,000 in the year, you still need to report it to HMRC, even if no tax is due.
This allowance doesn’t roll over: Use it or lose it each tax year. That’s why timing can matter. Selling £4,000 of shares in March and another £4,000 in April lets you use two years’ allowance instead of paying tax on £2,000.
How Much Capital Gains Tax Will You Pay?
Once you’re over the allowance, the rate you pay depends on two things: the type of asset and your Income Tax Band.
For most assets like shares and personal possessions:
- 10% if you’re a basic rate taxpayer
- 20% if you’re a higher or additional rate taxpayer
For residential property that isn’t your main home:
- 18% for basic rate taxpayers
- 24% for higher and additional rate taxpayers
HMRC calculates this by adding your taxable gain to your other income for the year. If that total stays within the basic rate band, you pay the lower rate. If it pushes you into the higher band, the part of the gain that falls into that band is taxed at the higher rate.
Example with shares: You earn £30,000 from your job. You sell investments for a £12,000 gain. After using your £3,000 allowance, you have a £9,000 taxable gain. Your basic rate band is £37,700 for 2025/26. So, £7,700 of the gain is taxed at 10% and £1,300 at 20%.
Reliefs And Exemptions That Reduce Your Bill
Not every gain gets taxed. The UK tax system includes several reliefs that can cut or wipe out your CGT bill.
Private Residence Relief
If you sell your main home, the gain is usually completely exempt. If you’ve lived elsewhere for part of the time you owned it, only the period you lived there as your main home is exempt. If you let it out or used part of it for business, the relief may be reduced.
Business Asset Disposal Relief
This lets you pay 10% Capital Gains Tax on gains up to £1 million over your lifetime when you sell all or part of a business you’ve owned for at least two years. It applies to sole traders, partners, and shareholders in their own trading company.
Capital Losses
If you sell an asset for less than you paid, you make a capital loss. You can use that loss to offset gains in the same tax year. If you don’t have enough gains, you can carry the loss forward to future years. Report the loss in the Capital Gains section of your SA108 within four years to keep it.
Gift To Spouse Or Civil Partner
Transfers between spouses and civil partners don’t trigger Capital Gains Tax. The receiving spouse inherits your original purchase price and date, so the gain is deferred until they sell.
Other Exemptions
Gains on ISAs, pensions, UK government gilts, and qualifying corporate bonds are exempt. Winnings from betting, lottery, and personal injury compensation are also tax-free.
When And How To Report And Pay
For UK Residential Property:
You must report and pay CGT within 60 days of completing the sale. Use HMRC’s ‘Capital Gains Tax on UK Property’ online service. You need to do this even if you make a loss or the gain covered by your allowance.
For All Other Assets:
You report the gain on a Self-Assessment tax return. The deadline is 31 January, after the end of the tax year in which you sold the asset. If you’re not already registered for Self-Assessment, you need to register by 5 October following the tax year.
You pay the tax by 31 January too. If you owe less than £3,000 and aren’t in Self-Assessment, you can sometimes report it through HMRC’s real-time CGT service, but most people use their tax return.
How To Calculate Capital Gains Tax
Calculating a profit is easy if you keep records.
Gain = Sale price – Purchase price – Selling costs – Purchase costs
Keeping your records of purchase receipts, improvement invoices, selling costs, and the dates you acquired and disposed of the asset. If you don’t have the original purchase price, HMRC lets you use the market value on 31 March 1982 for assets held that long ago.
Common Mistakes That Trigger HMRC Queries
Most Capital Gains Tax problems come from three issues.
Missing The 60-Day Deadline For Property Sale
The penalty starts at £100, and interest accrues on late tax. Mark the completion date as soon as you sell.
Forgetting To Claim Losses
If you made a loss on shares two years ago and a gain this year, you can still use that loss if you reported it. Many people forget and end up overpaying.
Trying To ‘Bed and Breakfast’ Shares
If you sell shares and buy them back within 30 days to use your allowance, HMRC links the transactions. You can’t do this outside an ISA. Use a ‘bed and ISA’ instead.
Legal Ways to Reduce Your CGT Bill
You can’t avoid CGT entirely, but you can manage it within the rules.
Use Both Spouses Allowances
Transfer assets to your spouse before selling to double the tax-free amount. This works because transfers between spouses don’t trigger CGT.
Spread Sales Across Tax Years
If you have a large gain, consider selling in chunks across two tax years to use two annual allowances.
Bed and ISA
Sell assets held outside an ISA and immediately buy them back inside an ISA. You use your allowance on the gain, and future growth inside the ISA is tax-free.
Offset Losses
Selling underperforming assets to create losses can cancel gains and reduce your tax bills.
Conclusion
Capital Gains Tax can appear complicated, but understanding the rules makes it far easier to manage.
The most important things to remember are:
- CGT applies to profit, not sale price
- You receive a £3,000 annual tax-free allowance
- Some assets are fully exempt
- Losses can reduce future tax bills
- Reporting deadlines must be met
Get the calculations and reporting right, and Capital Gains Tax becomes far easier to manage. It becomes just another part of managing your money well.
If you’re unsure about your position or want to make sure, you’re not overpaying, speak to an accountant before you file. At RMA Accountants, we handle CGT calculations and submissions for clients every day, so that you can be confident it’s done correctly the first time.
