What is Capital Gains Tax?

Published: 7th March 2025

Capital Gains Tax (CGT) is a tax you pay on the profit made when you sell, give away or otherwise dispose of an asset that has increased in value since you acquired it. It only applies to the gain – the difference between what you paid for the item and what you sold or disposed of it for – not the total amount you receive.

CGT can apply to a range of chargeable assets, including property (as long as it’s not your main home), shares and high-value items like antiques or artwork. You won’t have to pay CGT on personal possessions sold for less than £6,000, premium bonds, UK government gilts and winnings from betting or the lottery.

If you are looking for expert guidance on Capital Gains Tax? Our specialists can help you navigate allowances, deductions, and reporting to HMRC.

Learn more about our Capital Gains Tax services here or keep reading for more information.

How is Capital Gains Tax calculated?

Calculating Capital Gains Tax involves working out the profit, applying any available allowances or reliefs and then determining how much tax is due based on your income tax band and the type of asset sold.

Work out the gain

To calculate the gain, subtract what you originally paid for the asset (including associated purchase costs) from the amount you sold or disposed of it for.

Deduct allowable costs

You can reduce the taxable gain by deducting certain costs directly related to buying, improving or selling the asset. These might include legal fees, advertising costs, valuations or the cost of restorations. However, general running costs, day-to-day maintenance or repairs cannot be deducted because they don’t add to the asset’s value.

Keeping accurate records of your expenses is crucial, as HMRC will need proof to allow these deductions.

Apply the Annual Exempt Amount (AEA)

Everyone has a tax-free allowance for capital gains called the Annual Exempt Amount (AEA). For the 2024/25 tax year, this is £3,000 for individuals. If you jointly own an asset, such as with a spouse or civil partner, you can each use your allowance, giving a combined total of £6,000.

Determine your tax rate

The tax rate you pay depends on your income tax band and the type of asset. From the 30th October 2024, the rates are:

• 18% for basic-rate taxpayers on most gains.
• 24% for higher- and additional-rate taxpayers on most gains.
• Residential property gains are taxed at higher rates of 18% for basic-rate taxpayers and 28% for higher-rate taxpayers.

Your taxable income and gains are combined to decide which tax band you fall into, so be aware that selling a high-value asset could push you into a higher tax bracket.

How do you pay?

If you make a taxable gain, you’ll need to report it to HMRC. For most assets, you report gains in your Self Assessment tax return for the relevant tax year. The deadline to file your return and pay the tax is the 31 January after the end of the tax year when the gain was made. For example, if you sold shares in October 2024, you’d need to report the gain and pay the tax by the 31st January 2026.

If you don’t usually complete a Self Assessment tax return, you’ll need to register with HMRC by the 5 October following the tax year when you made the gain. Alternatively, you can use HMRC’s real-time reporting service to declare and pay your CGT without waiting until the end of the tax year.

For property gains, the process is different. If you sell a property that’s subject to CGT, you must report and pay the tax within 60 days of completing the sale. This is done through HMRC’s Capital Gains Tax on UK property service, which allows you to calculate and pay the tax online.

Make sure you keep accurate records of the property’s purchase price, any allowable expenses and the sale price. HMRC may ask for proof of these figures, so having the documentation ready is essential.

Do companies pay Capital Gains Tax?

Businesses don’t pay Capital Gains Tax (CGT) in the same way individuals do. Instead, companies in the UK pay Corporation Tax on any profits made from selling or disposing of their assets. This applies to gains from selling property, equipment, shares or other chargeable assets that have increased in value since the company acquired them.

Corporation Tax rates

From April 2023, Corporation Tax rates are based on the company’s overall profits:

• Companies with profits up to £50,000 pay a rate of 19%.
• Companies with profits between £50,001 and £250,000 pay a marginal rate, gradually increasing to the full rate.
• Companies with profits over £250,000 pay the main Corporation Tax rate of 25%.

Gains from selling assets are included in a company’s total profits for the accounting period and taxed at the relevant rate.

Reporting and payment

Companies report their gains as part of their Corporation Tax return, which is submitted to HMRC annually. Payment is due within nine months and one day after the end of the company’s accounting period.

What about sole traders and partnerships?

Sole traders and partnerships aren’t companies, so any gains they make on chargeable assets are subject to CGT rules for individuals rather than Corporation Tax. They can use the Annual Exempt Amount and are taxed based on their personal income tax band.

For expert tax guidance on Capital Gains Tax and other tax obligations, speak to a chartered accountant who can review your situation and identify any available reliefs.