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When does Capital Gains Tax apply?

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. It is not a tax on the whole amount you receive – only on the gain. For example, if you buy shares for £2,000 and later sell them for £3,500, your gain is £1,500. That gain, not the £3,500, is what CGT is calculated on.

Most people encounter CGT when selling a second home, a buy-to-let property, shares held outside an ISA, or valuable personal items such as art or antiques. Gifts to someone other than your spouse or civil partner can also trigger a gain, even if no money changes hands. Your main home is usually exempt thanks to Principal Private Residence relief, but there are exceptions if you have let part of it out or used it for business.

Your annual exempt amount

Each individual has an annual exempt amount – a tax-free allowance for gains. For the 2024/25 tax year, this is £3,000. If your total gains are below this, you generally have nothing to pay and no need to report them, unless you have sold a UK property that must be reported for other reasons. Married couples and civil partners each get their own allowance, so together you can shelter £6,000 of gains.

The allowance cannot be carried forward. If you do not use it in one tax year, it is lost. This makes it worth planning larger disposals over more than one tax year where possible. For small businesses and households with assets to sell, timing can make a real difference to the tax bill.

Rates, reliefs and special rules

The rate you pay depends on your income and the type of asset. For most assets, basic-rate taxpayers pay 10% and higher or additional-rate taxpayers pay 20%. For residential property that is not your main home, the rates are higher: 18% for basic-rate taxpayers and 24% for higher or additional-rate taxpayers. These rates apply to gains above your annual exempt amount.

There are valuable reliefs. Business Asset Disposal Relief can reduce the rate to 10% on qualifying gains up to a lifetime limit of £1 million when you sell or close a business. Principal Private Residence relief usually covers your main home. Personal belongings – called chattels – are exempt if sold for £6,000 or less, and if sold for more, the gain is calculated in a special way. Transfers between spouses or civil partners are treated as no gain, no loss, so the asset passes without triggering CGT.

How to work out your gain

Start with the sale proceeds, then deduct the original purchase price and any costs directly related to buying or selling the asset. These can include solicitors’ fees, estate agent fees, stamp duty, and improvement costs – but not routine maintenance or repairs. Keep every receipt and record.

For shares, the rules are more complex. You need to match shares sold with shares bought on the same day, then within the following 30 days, and finally use the pooled cost of all remaining shares of the same company. A simple spreadsheet listing dates, amounts, and costs will keep you accurate. If you sell part of an asset, you need to apportion the original cost.

Reporting and paying CGT

If you sell UK residential property, you must report and pay CGT within 60 days of completion, even if you have no tax to pay. This is done through a government online service. For other assets, you report gains through Self Assessment. The deadline is 31 January following the end of the tax year in which you made the gain. So a gain in 2024/25 must be reported and paid by 31 January 2026.

You need to register for Self Assessment if you are not already in it. If your gains are above the annual exempt amount, or your total sale proceeds are more than four times the allowance, you must report them. Late reporting and payment can lead to penalties and interest, so mark the dates in your diary.

Simple bookkeeping for households and small businesses

Good records make CGT straightforward. For households, keep a dedicated folder – digital or paper – for each asset you might sell: purchase documents, improvement receipts, and sale paperwork. Note the date, amount, and reason for every cost. For small businesses, separate business and personal assets clearly, and log disposals as they happen.

• Use a simple spreadsheet with columns for date, description, cost, proceeds, and gain.
• Scan receipts and store them in the cloud or on your computer, labelled by tax year.
• Review your assets each April to see if any disposals are coming up and whether spreading them across tax years would help.
• Set aside money for tax as soon as you make a gain – a separate savings account works well.
• If you are unsure, speak to an accountant. A short conversation can save you far more than the fee.

Capital Gains Tax does not have to be intimidating. With a little planning and tidy bookkeeping, you can keep more of what you earn and stay on the right side of HMRC.