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Capital gains tax (CGT) is charged on the profit you make when you sell (or “dispose of”) an asset that has increased in value since you acquired it. You’re taxed on the gain — the difference between what you paid and what you received — not on the total sale proceeds.
CGT applies to a wide range of assets: property (excluding your main home in most cases), shares and investments held outside an ISA, business assets, and valuable personal possessions worth more than £6,000.
What Triggers a Capital Gains Tax Liability?
CGT is triggered by a “disposal” — which includes:
– Selling an asset (shares, property, land, business)
– Giving an asset away (gifting shares or property to someone other than your spouse)
– Exchanging one asset for another (e.g., company shares in a takeover)
– Receiving compensation for an asset (insurance payout for lost or destroyed property)
What doesn’t trigger CGT:
– Your main home (in most cases — see below)
– ISAs and SIPPs — gains inside these wrappers are completely exempt
– Gifts between spouses or civil partners
– Betting, lottery winnings
– UK government gilts (bonds)
– Personal possessions worth less than £6,000
Capital Gains Tax Rates (2024/25)
The CGT rate depends on what you’re selling and your income tax band:
Residential property (that is not your main home):
– Basic rate taxpayer: 18%
– Higher rate taxpayer: 24%
Other assets (shares, funds, second businesses, etc.):
– Basic rate taxpayer: 10%
– Higher rate taxpayer: 20%
Which rate you pay depends on whether the gain, added to your income, falls within the basic rate band (up to £50,270 in 2024/25). Gains that fall within the basic rate band are taxed at the lower rate; gains above it are taxed at the higher rate. A gain can straddle both rates.
The Annual CGT Exempt Amount
Everyone has an annual Capital Gains Tax exemption — an amount of gains you can make each year before CGT applies. This exemption was significantly reduced in recent years:
- 2022/23: £12,300
- 2023/24: £6,000
- 2024/25: £3,000
Gains below this amount in a tax year are entirely exempt from CGT. This exemption cannot be carried forward — if you don’t use it, it’s lost for that year.
For couples: Each partner has their own annual exempt amount (£3,000 each for 2024/25 = £6,000 between you). Transferring assets between spouses before a disposal can allow both exemptions to be used.
Property and Principal Private Residence Relief
If you sell your main home (the property you live in), you generally pay no CGT — this is covered by Principal Private Residence (PPR) Relief. The exemption covers the entire gain if you’ve lived there throughout your ownership.
Partial relief applies if:
– You let out part of your home (lettings relief has been restricted — you can only claim it if you share the home with your tenant)
– You used part exclusively for business
– You lived there for only part of your ownership period
For a second home, rental property, or buy-to-let, there’s no PPR relief — the gain is fully taxable at 18% or 24%.
Reporting and Paying CGT
Residential property: If you sell a UK residential property that results in a CGT liability, you must report it and pay any tax owed within 60 days of completion via HMRC’s UK Property Reporting Service.
Other assets: Report gains (and losses) through your annual Self Assessment tax return, due by January 31 following the end of the tax year. You only need to complete Self Assessment if your gains are above the annual exempt amount.
If you don’t normally file a Self Assessment return, you can use HMRC’s Capital Gains Tax real-time service for non-property assets.
Reducing Your Capital Gains Tax Legally
Use your annual exempt amount: Realising gains up to £3,000/year in a structured way (e.g., selling some shares each April) keeps you below the threshold.
Use your ISA and pension: Gains inside ISAs and SIPPs are completely exempt. Gradually moving investments into an ISA (“bed and ISA”) — selling outside the ISA and buying back inside — shelters future gains. Subject to ISA allowance limits.
Offset losses: Capital losses in the same or previous years can be offset against gains. Keep records of any losses — they can be carried forward indefinitely.
Spousal transfers: Assets transferred between married couples or civil partners carry no immediate CGT. The receiving partner inherits the original cost basis but can then use their own annual exempt amount when they sell.
Carry back losses: You can carry losses back to offset gains from the previous year if the asset was lost or destroyed (limited circumstances).
Summary
Capital gains tax applies to profits from selling assets — but the rules and reliefs mean many people pay less than they expect:
- You pay CGT on the gain, not the sale proceeds — subtract what you paid from what you received
- The annual exempt amount is £3,000 (2024/25) — gains below this are tax-free
- Your main home is exempt from CGT in most cases under PPR relief
- Report residential property gains within 60 days of completion — this is a strict deadline
- Use ISAs, losses, and spousal transfers to legally minimise your CGT liability
Next read: Personal savings allowance explained UK | https://moneyunpacked.com/personal-savings-allowance-explained-uk/