Capital Gains Tax is one of those things that sounds scary but is actually quite straightforward once you understand it. Think of it as the tax you pay when you make a profit from selling something.
The bad news is the allowances have been slashed recently. The good news is there are still plenty of ways to minimise what you pay.
What Is Capital Gains Tax?
CGT is the tax you pay on the profit when you sell an asset for more than you paid for it. It's the gain that's taxed, not the total amount you receive.
So if you buy shares for £5,000 and sell them for £8,000, your capital gain is £3,000. That's what gets taxed, not the full £8,000.
What's Subject to CGT?
Most things you can sell for a profit are subject to CGT:
- Shares and other investments
- Property (including buy-to-let)
- Cryptocurrency
- Business assets
- Valuable possessions worth over £6,000
What's Exempt?
Some things are exempt from CGT:
- Your main home (primary residence)
- Cars (including classic cars)
- ISAs and pensions
- Premium Bonds
- Gambling winnings
- Gifts to charity
The ISA exemption is huge - you can make unlimited gains inside an ISA without paying any CGT.
CGT Rates for 2025/26
The rates depend on your income tax bracket and what you're selling:
Most Assets (Shares, Crypto, etc.):
- Basic Rate Taxpayers: 10% CGT
- Higher Rate Taxpayers: 20% CGT
Property:
- Basic Rate Taxpayers: 18% CGT
- Higher Rate Taxpayers: 24% CGT
Property gets hit harder because the government wants to discourage speculation in the housing market.
The Annual Allowance
Here's where it gets painful. The CGT annual allowance has been slashed:
- 2025/26: £3,000
- 2023/24: £6,000
- 2022/23: £12,300
So you can only make £3,000 in gains per year without paying CGT. Anything above that gets taxed.
Example:
You sell shares making a £5,000 profit. You pay CGT on £2,000 (£5,000 - £3,000 allowance). If you're a basic rate taxpayer, that's £200 tax. If you're a higher rate taxpayer, that's £400 tax.
How to Calculate Your CGT
The calculation isn't too complicated:
- Work out your total gains for the year
- Subtract any losses from the same year
- Subtract the £3,000 annual allowance
- Apply the appropriate rate
You can also carry losses forward from previous years to offset against future gains.
CGT on Property
Property CGT is more complex because there are more rules:
Main Residence
Your main home is usually exempt from CGT. But if you've rented it out or used it for business, part of the gain might be taxable.
Buy-to-Let
Buy-to-let properties are subject to CGT at 18% or 24%. But you can deduct:
- The original purchase price
- Stamp duty and legal fees
- Estate agent fees when selling
- Improvement costs (not repairs)
Second Homes
Holiday homes and second properties are subject to CGT, but you might be able to claim lettings relief if you've rented them out.
CGT Planning Strategies
Use Your Allowance
Make sure you use your £3,000 allowance each year. If you don't use it, you lose it.
Timing
If you're planning to sell investments, consider spreading the sales across tax years to use multiple allowances.
Losses
Realise losses to offset against gains. This is called "tax loss harvesting."
Spouse Transfers
You can transfer assets to your spouse before selling them. This effectively doubles your allowance to £6,000 per couple.
ISA Bed and Breakfast
Sell investments outside an ISA (realising gains up to your allowance) and immediately buy them back inside an ISA.
Common Mistakes
Not Keeping Records
HMRC requires detailed records of all your transactions. Keep purchase receipts, sale confirmations, and any costs you can offset.
Forgetting About Costs
You can deduct legitimate costs from your gains - dealing fees, legal costs, stamp duty, etc.
30-Day Rule
If you sell shares and buy them back within 30 days, the loss won't count for CGT purposes. This prevents artificial loss creation.
Not Claiming Losses
You must actively claim losses on your tax return. They don't get applied automatically.
CGT on Cryptocurrency
Crypto is subject to CGT like any other asset. Every time you:
- Sell crypto for pounds
- Trade one crypto for another
- Use crypto to buy goods
You potentially have a CGT event. Keep detailed records - HMRC is getting better at tracking crypto transactions.
When Do You Pay CGT?
For most assets, you report CGT gains in your annual self-assessment tax return and pay by 31 January following the end of the tax year.
For property, you need to report and pay CGT within 60 days of completion. This is called "payment on account."
Professional Help
CGT can get complicated quickly, especially with property or if you're an active trader. Consider getting professional help if:
- You have complex investments
- You're selling property
- You have significant gains
- You're not sure about the rules
A good accountant can often save you more than their fees through proper planning.
The Bottom Line
CGT is a fact of life for investors. The rates aren't terrible, but the low allowance means you'll pay tax on relatively small gains.
The key is planning ahead. Use your allowances, consider timing, and don't let the tax tail wag the investment dog.
Remember: paying CGT means you made a profit. That's still a good problem to have.
The best time to plant a tree was 20 years ago. The second best time is now. The same applies to CGT planning.