Key takeaways
- From 30 October 2024, CGT rates on non-residential assets rose to 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers, matching residential property rates.
- The annual exempt amount for 2025/26 is £3,000 per individual and £1,500 for most trustees, down from £12,300 just three years earlier.
- Business Asset Disposal Relief (formerly Entrepreneurs' Relief) is charged at 14% for 2025/26 on qualifying gains up to a £1 million lifetime limit, increasing to 18% from April 2026.
- Capital losses can be set against gains in the same tax year, with any excess carried forward indefinitely. Losses must be reported to HMRC within four years of the tax year they arise.
- UK residential property disposals that produce a taxable gain must be reported and paid within 60 days of completion using HMRC's CGT property disposal service.
Introduction to Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is a tax you pay in the UK when you earn profit from selling or disposing of certain assets. These assets can include property, shares, crypto or even valuables. The profit, or "gain," is the amount you make above what you initially paid for the asset.
CGT doesn’t apply to all assets or transactions, and specific exemptions and reliefs may help reduce your tax bill. However, understanding the basics of CGT is important to ensure you comply with the law and make the most of available allowances.
Importance of Understanding CGT for Financial Planning
Understanding Capital Gains Tax is important for managing your finances effectively. By being aware of the rules, you can:
- Avoid surprises: Knowing when CGT applies helps you plan for potential tax bills.
- Maximise allowances: Each tax year, you get an annual CGT allowance (currently £3,000 for 2024/25). Using this allowance wisely can reduce your tax liability.
- Time your sales: Strategic timing can help you minimise the tax you owe. For instance, spreading asset sales across multiple tax years may lower your bill.
- Optimise investments: Understanding CGT allows you to make informed decisions about selling or retaining assets, ensuring your investments align with your goals.
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit you earn when you sell, transfer, exchange, or give away an asset that has increased in value. It’s not the total amount of money you receive but the gain or profit that is taxed. For example, if you bought an asset for £10,000 and sold it for £18,000, you might pay tax on the £8,000 gain.
When Does CGT Apply?
You might have to pay CGT in various scenarios, including:
1. Selling Property
If you sell a second home, a rental property, or a holiday home, you may need to pay CGT. Your primary home is usually exempt under Private Residence Relief, but this doesn’t apply to second homes or buy-to-let properties.
2. Selling Shares
Profits from selling shares or investments outside of tax-free accounts like ISAs (Individual Savings Accounts) are often subject to CGT.
3. Selling Valuables
Gains from selling personal possession items such as artwork, antiques, coins and stamps or jewellery worth more than £6,000 may be taxed.
4. Selling Business Assets
If you make a profit when you sell all or part of a business asset such as land and buildings, fixtures and fittings, plant and machinery.
5. Cryptocurrency Transactions
Selling Cryptocurrency
- Selling or exchanging cryptocurrencies like Bitcoin, Ethereum, or other digital assets for a profit triggers CGT.
Spending Cryptocurrency
- Even using cryptocurrency to buy goods or services counts as a disposal and may lead to CGT if there’s a gain.
6. Inheritance and Gifts
Gifts
- Giving away an asset to someone other than your spouse or civil partner is treated as a "disposal" for CGT purposes. You may need to pay tax based on the market value of the asset at the time of the gift, even though no money was exchanged.
- Gifts to spouses or civil partners are exempt as long as you live together.
Inheritance
- Inherited assets don’t usually incur CGT at the time of inheritance. Instead, Inheritance Tax may apply.
- CGT is payable when you sell an inherited asset and make a gain based on its value at the time of inheritance.
When does Capital Gains Tax not Apply?
CGT doesn't apply in the following instances:
- Gifts made to a spouse or civil partner
- Sale of your primary home
- Gifting of personal possessions (capped at a limit of £6,000 per year)
- Sale or gifting of cars (used for non-business purposes)
- ISAs and Peps
- UK government gilts and Premium Bonds
- Proceeds from a life insurance policy
- Lottery winnings
- Pensions
- Child trust funds
- National Savings & Investments (NS&I) products
Capital Gains Tax Rates 2024/25
The amount of Capital Gains Tax (CGT) you pay depends on your income tax band. Your taxable gains are added to your income to determine which tax rate applies.
- Basic Rate Taxpayers: If your total income (including the capital gain) falls within the basic rate band, you pay a lower CGT rate.
- Higher and Additional Rate Taxpayers: If the added gain pushes your income into the higher or additional rate band, you pay higher CGT rates on the portion above the threshold.
Capital Gains Tax Allowance 2025/26
What is the Capital Gains Tax Allowance?
The Capital Gains Tax (CGT) allowance is a tax-free amount you can deduct from your total gains before calculating how much CGT you owe. For the 2025/26 tax year, the CGT allowance is £3,000 per individual.
Capital Gains Tax Free Allowance: Year Over Year
This allowance applies to everyone, including basic, higher, and additional rate taxpayers. It reduces the taxable amount of your gains, helping you lower or eliminate your CGT liability.
Calculating Capital Gains Tax
Follow these steps to work out how much CGT you owe:
1. Determine the Sale Price of Your Asset
- Identify the amount you received when you sold the asset.
- If you gifted the asset, use its market value at the time of transfer.
2. Calculate the Cost of the Asset
Include the original purchase price and any related costs, such as legal fees, stamp duty, or survey costs for property.
For inherited assets, use the market value at the time of inheritance.
3. Apply the Annual Allowance
Every individual gets a tax-free CGT allowance, which is £3,000 for the 2024/25 tax year. Deduct this allowance from your net gain to calculate your taxable amount.
4. Calculate the Tax Owed
The taxable gain is subject to CGT rates, depending on your income tax band:
- Basic Rate Taxpayers: 18% for residential property and other chargeable assets.
- Higher and Additional Rate Taxpayers: 24% for residential property and other chargeable assets.
Manually calculating CGT can be time-consuming, especially with multiple assets or varying rates. Use our Capital Gains Tax Calculator to save time and ensure accuracy.
Allowable Expenses for Capital Gains Tax
you can reduce the taxable gain by deducting certain allowable costs:
1. Purchase Costs
When you bought the asset, you likely paid more than just the purchase price. You can deduct:
- The original purchase price
- Stamp Duty Land Tax (for property)
- Legal fees
- Surveyor costs
- Valuation fees
2. Improvement Costs
If you have spent money improving the asset, these costs can be deducted. However, routine maintenance or repairs do not qualify. Allowable improvements include:
- Extensions or conversions on property
- Adding new features (e.g., a conservatory or garage)
- Structural upgrades
3. Selling Costs
You can claim expenses related to selling the asset, such as:
- Estate agent fees
- Legal fees for the sale
- Advertising costs
- Auction fees (if applicable)
4. Acquisition and Disposal Costs
If you paid for professional advice when buying or selling the asset, these costs can be deducted. Examples include:
- Financial adviser fees
- Broker fees for shares or investments
- Specialist valuation reports
5. Costs Related to Ownership
Although general running costs (like mortgage interest or repairs) are not deductible, some ownership-related costs can be included in specific cases. For instance:
- Certain lease extension costs
- Costs directly linked to securing planning permission for development
6. Capital Losses
If you sell an asset for less than its original cost, you may register a capital loss. These losses can offset future gains, reducing the CGT you owe.
Watch below video from HMRC to know more on allowable expenditure you can claim against Capital Gains Tax:
How to Reduce Your Capital Gains Tax
There are legal ways to reduce the CGT you owe. These strategies can help you make the most of tax allowances and exemptions, ensuring you keep more of your profits. Here are some strategies to help you reduce your CGT liability:
1. Use Your Annual CGT Allowance
Every individual in the UK has a CGT (£3,000 in 2024/25). If your total gains stay below this all, you won’t pay any CGT. To maximise this:
- Time asset disposals to spread gains over different tax years.
- Ensure both you and your spouse use your exemptions, as these allowances cannot be shared or carried forward.
2. Offset Losses Against Gains
If you’ve made a loss on selling an asset, you can use it to reduce your taxable gains.
- How It Works: Deduct your losses from your gains within the same tax year. For example, if you made a £10,000 gain on one asset but a £3,000 loss on another, your taxable gain becomes £7,000.
- Carry Forward Losses: If your losses exceed your gains, you can carry the unused losses forward to future tax years, as long as you report them to HMRC.
3. Gift Assets to Your Spouse or Civil Partner
Gifting assets to your spouse or civil partner is tax-free. By transferring assets to them, you can utilise both of your CGT allowances, effectively doubling your tax-free gains. This is particularly useful if one partner pays a lower tax rate or has unused exemptions.
4. Invest in Tax-Efficient Accounts
Consider using accounts like ISAs (Individual Savings Accounts) and pensions to protect your investments from CGT:
- Profits made within an ISA are completely tax-free.
- Investments held in a pension fund are also exempt from CGT.
5. Time Asset Sales
Timing matters when it comes to CGT. By delaying the sale of assets, you can:
- Move the gain into a future tax year when your income or tax rate might be lower.
- Spread disposals across multiple years to stay under the exempt amount each year.
6. Claim Private Residence Relief (PRR)
If you sell your main home, you can claim Private Residence Relief, which exempts most or all of the gain. To qualify:
- The property must have been your main residence for the entire time you owned it.
- If you’ve let out the property, you might still qualify for partial relief.
7. Use Enterprise Investment Schemes (EIS)
Investing in certain government-approved schemes like the Enterprise Investment Scheme (EIS) can defer or exempt CGT:
- Gains can be deferred by reinvesting them into an EIS-qualifying company.
- After holding the investment for a certain period, you might be exempt from CGT altogether.
8. Claim Business Asset Disposal Relief
If you sell a business or shares in your own company, you may qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief):
- Pay a reduced CGT rate of 10% on qualifying gains.
- Ensure the business or assets meet the necessary criteria, such as ownership for at least two years.
9. Gift to Charity
Assets gifted to registered charities are exempt from CGT. Not only do you avoid paying tax, but you also support a good cause.
10. Get Professional Advice
A qualified accountant in London can help you:
- Identify overlooked exemptions or reliefs.
- Plan your disposals strategically.
- Ensure you comply with the latest tax regulations while minimising your liability.
How to Report and Pay Capital Gains Tax (CGT)
If you've made a capital gain and need to pay CGT, it’s important to report and pay the tax on time to avoid penalties. Here’s a simple guide on how to report and pay your Capital Gains Tax (CGT) to HMRC.
Deadlines for Reporting CGT in the UK
Timing is essential when it comes to reporting CGT. The deadlines differ based on the type of asset sold:
- For Residential Property:You must report and pay CGT within 60 days of completing the sale.This rule applies to UK and overseas residential properties that result in a taxable gain.
- For Other Assets:Report and pay by 31 January following the end of the tax year in which the gain occurred.For example, if you sold shares in June 2024, include it in your self-assessment tax return by 31 January 2026.
Watch below video from HMRC on how to report and pay Capital Gains Tax on property disposals:
Use HMRC's Online Service
HMRC makes it easy to report and pay your Capital Gains Tax through their online service. Here's how you can do it:
- Online Account: To report CGT, you’ll need to set up a personal account with HMRC if you don’t already have one. This account will allow you to submit your tax return and make payments.
- Self-Assessment: If you’re already registered for Self-Assessment, you’ll report CGT on your self assessment tax return. If you aren’t registered, you’ll need to sign up for Self-Assessment by the 5th October following the tax year in which you made the gain.
- Capital Gains Tax Summary: Once you’ve logged into your HMRC account, fill out the Capital Gains Tax Summary form, where you will detail the assets you sold, the gains you made, and any allowable costs.
Penalties for Late Payment or Incorrect Filing
Failing to report or pay CGT on time can result in significant penalties:
Late Filing Penalties: If you don’t file your CGT report by the deadline, you’ll be charged a penalty. For a delay of up to 3 months, the penalty starts at £100. The penalty increases the longer you delay, so it’s best to report on time.
Interest on Late Payments: If you don’t pay your CGT by the deadline, HMRC will charge interest on the amount owed. This can quickly add up, so it’s important to pay by the 31st January deadline.
Additional Penalties for Repeated Offences: If you repeatedly fail to report CGT or make mistakes in your filing, HMRC may charge additional penalties or investigate further.
How Cryptocurrency Gains are Taxed
Cryptocurrency, such as Bitcoin, Ethereum, and others, is considered a digital asset by HMRC. If you profit from buying, selling, or exchanging cryptocurrencies, you may owe capital gains tax on those gains. You may need to pay CGT when you:
- Sell Cryptocurrency for Fiat Money: For example, converting Bitcoin into pounds sterling.
- Exchange One Cryptocurrency for Another: For instance, swapping Bitcoin for Ethereum.
- Use Cryptocurrency to Pay for Goods or Services: The value of the cryptocurrency at the time of the transaction may be taxed.
- Give Cryptocurrency as a Gift: If you gift cryptocurrency to someone other than your spouse or civil partner, it is treated as a disposal and could trigger CGT.
Reporting Cryptocurrency Gains
You must report your cryptocurrency gains on your Self Assessment tax return. HMRC requires you to:
- Report all taxable transactions, even if no tax is due.
- Submit your return by the 31 January deadline following the end of the tax year.
- Pay any tax owed by the same deadline to avoid penalties.
Cryptocurrency gains are taxable, and understanding these rules is essential to avoid penalties and optimise your tax position. Whether you’re trading Bitcoin, exchanging Ethereum, or earning through mining, knowing when and how to pay tax is key.
If you’re unsure about your crypto tax obligations or need help calculating your gains, get advice from our cryptocurrency accountants. They can guide you through the process and help you minimise your tax liability while staying compliant with HMRC regulations.
Record Keeping for CGT Tax
Keeping accurate records is essential when it comes to Capital Gains Tax (CGT). Not only does it help ensure you pay the right amount of tax, but it also protects you if HMRC ever decides to review your tax return.
You'll need to keep receipts, invoices or bills that show the date and the amount of:
- The original cost of the asset
- Market value of the asset on other dates: If you've used the market value of the asset on specific dates (as opposed to its original cost) in your CGT calculation, you may need to get an asset valuation or appraisal.
- Improvement costs paid: This refers to money that you spent on improving the value of the asset.
- Additional costs paid: Legal fees, valuation fees, Stamp Duty, costs you've incurred to prove your ownership of the asset or fees paid for professional advice are some examples of additional costs that you may have spent to sell or dispose of an asset. These may be deducted in your CGT calculation.
- Money you received for the asset: This includes instalment payments, or compensation such as insurance payouts.
How Long Should You Keep Records?
In general, you must keep your records for at least five years after the 31 January submission deadline of the tax year in which you made the gain. For example, if you made a gain in the 2024/25 tax year, you should keep your records until at least 31 January 2031.
Get Expert CGT Tax Advice from GoForma
Planning for CGT is essential to avoid unexpected surprises. By understanding how it works and using the strategies available to you, you can reduce the amount of tax you pay.
If you're unsure about your CGT obligations or want to optimise your tax position, it's wise to seek tailored advice from an experienced tax accountant. A qualified accountant can help you make the best decisions, ensuring you take full advantage of allowances and reliefs, while keeping your tax bill as low as possible.
Schedule a free consultation with our professional tax accountant today to ensure you're on the right track and making the most of your investments.
