Introduction
Capital gains tax (CGT) can sneak up on anyone who’s made a profit from selling valuable assets. Whether you’ve sold a second home, offloaded shares, or cashed in a collectible, the government may want a piece of your earnings.
This guide breaks down exactly what capital gains tax is, how it works, and what you need to know to stay compliant.
What Is Capital Gains Tax?
Capital gains tax (CGT) is a tax charged on the profit you gain from “disposing of” an asset that has increased in value from its original purchase price. If you’re going to sell or transfer a property, for example, there’s a small percentage you will owe to the government based on your total profit.
CGT applies to both individuals and businesses. For individuals, it commonly affects profits from assets such as property (excluding your main residence), stocks and investments not held in an ISA or pension, and personal possessions worth over £6,000, like jewellery or art.
Businesses may also owe CGT when they dispose of assets, although they may qualify for certain reliefs like Business Asset Disposal Relief, which can reduce their UK CGT rates.
Here are the assets often covered by capital gains tax:
- Property – This includes second homes, buy-to-let properties, and land. Your main home is usually exempt if it qualifies for Private Residence Relief.
- Shares and investments – Taxation on shares not held in an ISA or pension, units in investment funds, and cryptocurrencies like Bitcoin.
- Personal possessions – Also called chattels, these are items worth more than £6,000, such as antiques, jewellery, art, and collectibles. Cars are generally exempt unless used for business.
- Business assets – These include business premises, vehicles, equipment, and machinery.
- Overseas assets – If you’re a UK resident, you must report and pay CGT on gains from assets located abroad.
How Capital Gains Tax Works
CGT is levied only on the profit you make from selling an asset. However, calculating it isn’t as simple as deducting a fixed percentage from your gains. There are other numbers you need to take into consideration. Here’s how you compute it:
1. Begin by subtracting your original purchase price from the sale price. This will yield you your basic gain.
2. Next, you can deduct the taxable amount by offsetting allowable costs such as legal fees, estate agent commissions, stamp duty (for property), and any improvements you made to the asset, not regular maintenance.
3. After accounting for these costs, you may also be able to apply specific reliefs or exemptions, such as Private Residence Relief and Business Asset Disposal Relief.
4. Finally, subtract your annual CGT allowance, which is £3,000 for individuals in the 2024/25 tax year. The remaining amount is your taxable gain, and this is what’s used to calculate your CGT bill based on your applicable tax rate.
What is the Annual CGT Allowance
The HMRC offers several ways for UK taxpayers to get a little relief from the taxes they owe. One of the most common, and perhaps the most important, for those dealing with capital gains is the Capital Gains Tax (CGT) annual allowance.
It’s basically a tax-free threshold. Each tax year, you’re allowed to earn a certain amount of capital gains before any CGT becomes payable. For the 2024/25 tax year, the annual CGT allowance for individuals is £3,000. That means you only pay CGT on the gains above that amount. If your total gains for the year are less than the allowance, you won’t owe any CGT at all.
Sample Capital Gains Tax Calculation
Let’s say you bought a second home in 2012 for £150,000 and sold it in 2025 for £250,000. That’s a £100,000 basic gain already. Now let’s apply the remaining numbers.
- Basic gain:
Sale price (£250,000) – Purchase price (£150,000) = £100,000 - Deduct allowable costs:
You paid £3,000 in legal fees, £2,000 in stamp duty, and £10,000 on kitchen and bathroom improvements.
Total allowable costs: £15,000
Adjusted gain: £100,000 – £15,000 = £85,000 - Apply reliefs and exemptions:
This is a second home, so Private Residence Relief doesn’t apply. Let’s assume no other relief is available. - Deduct the annual CGT allowance:
Annual exemption (2024/25): £3,000
£85,000 – £3,000 = £82,000 taxable gain
Now, let’s calculate the CGT owed.
If you’re a higher-rate taxpayer, you’ll pay 24% CGT on property gains.
So: 24% of £82,000 = £19,680
Final Capital Gains Tax bill: £19,680
Capital Gains Tax Rates in the UK
Capital Gains Tax (CGT) in the UK isn’t one-size-fits-all. The rate you pay depends on a combination of factors: your income level, the type of asset you’re disposing of, and whether you’re an individual or a trustee.
Special reliefs and tax-free allowances also play a role in how much CGT is ultimately due. Below is a breakdown of the current CGT rates for the 2025–26 tax year, with important details on how they apply in different situations.
Capital Gains Tax Rates for Individuals
| Asset Type | Basic Rate Taxpayer | Higher/Additional Rate Taxpayer |
| Residential Property | 18% | 24% |
| Other Chargeable Assets | 10% | 20% |
| Business Assets (BADR) | 10% | 10% (up to £1M lifetime limit) |
These rates apply to individuals based on their income tax band. Basic rate taxpayers benefit from lower CGT rates unless their total income plus gains pushes them into a higher band.
Residential property is taxed more heavily than other assets, while qualifying business assets enjoy a special 10% rate through Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), subject to a lifetime cap of £1 million. This encourages entrepreneurship and investment in small businesses.
Capital Gains Tax Rates for Trusts
| Asset Type | Standard CGT Rate |
| Residential Property | 24% |
| Other Chargeable Assets | 20% |
| Business Assets (BADR) | 14% |
Trusts are generally hit with higher rates than individuals, reflecting their role as separate legal entities. Notably, the Business Asset Disposal Relief rate for trusts is 14%, which is higher than the individual rate and only applies to qualifying disposals.
This distinction often makes tax planning more complex for trustees and highlights the importance of understanding trust-specific reliefs.
Annual Exempt Amount for Trusts
| Trust Type | Exempt Amount |
| Standard Trust | £1,500 |
| Trust for Vulnerable Beneficiary | £3,000 |
Trusts have a lower annual tax-free allowance compared to individuals (£3,000 for individuals). However, if a trust has a vulnerable beneficiary, for example, a disabled person or a bereaved child, it qualifies for a higher exempt amount.
This is designed to provide financial protection to those in vulnerable circumstances. It’s also important to note that the allowance may be split if the settlor has created multiple trusts.
FAQ: Capital Gains Tax Questions You’re Probably Wondering
1. Do I need to pay capital gains tax if I give a gift to someone?
Yes. CGT may apply unless the gift is to your spouse or a charity.
2. How do I report capital gains tax on my self-assessment tax return?
Log in to your HMRC account, report the disposal under ‘Capital Gains Summary’, and pay any tax owed by the deadline.
3. Is there a way to delay paying capital gains tax?
In some cases, yes. For example, you can reinvest in qualifying assets or use a tax deferral scheme (often for businesses).
4. What happens if I make a capital loss instead of a gain?
You can report the loss to offset against future gains, reducing your future CGT bill.
5. Can I transfer assets to my spouse to avoid capital gains tax?
Yes. Spouses and civil partners can transfer assets tax-free. It’s a common legal strategy to reduce CGT.
Keep the Hassle Out of Your Capital Gains Tax Compliance with eAccounts Expert Help
By now, you may have realised that Capital Gains Tax isn’t as simple as paying a certain percentage of your profits. There are layers of rules, exceptions, allowances, and reliefs that can significantly affect how much you actually owe. One missed detail, like forgetting to include improvement costs or applying the wrong rate, can lead to paying more tax than necessary or facing penalties for incorrect reporting.
That’s where eAccounts steps in.
Our Capital Gains Tax accountants team is here to ensure nothing slips through the cracks. Whether you’re selling a second property, navigating complex investment disposals, or dealing with assets held in a trust, we’ll provide full support from start to finish. We handle everything—from calculating your gain and applying the correct reliefs to submitting your tax return on time and ensuring full HMRC compliance.
Let eAccounts take the guesswork out of CGT and help you keep more of your hard-earned profit.
Contact us today for expert guidance and peace of mind! Click one of the buttons below to either ‘Get a Quote’ for your business OR ‘Book a Meeting’ with one of our experts!
