Capital Gains Tax (CGT) is a tax charged on the profit made when you sell or dispose of an asset that has increased in value. The tax is applied to the gain, which is the difference between what you paid for the asset (the purchase price) and what you sold it for. CGT is typically applicable to assets such as property (excluding your primary residence in certain cases), stocks, bonds, or business assets. It is not charged on the sale of personal belongings like clothing or household items, or on gifts made to family members or charities.
CGT is calculated on the gain you make from the sale of an asset. For example, if you bought a stock for £1,000.00 and later sold it for £1,500.00, the gain would be £500.00. This £500.00 would potentially be subject to CGT, depending on your overall tax situation and any available allowances or exemptions.
The rate at which CGT is charged depends on the type of asset sold and your overall income. For individuals, the basic rates are:
- 10% on gains from most assets, for basic rate taxpayers.
- 18% on gains from the sale of residential property.
- 20% for higher rate taxpayers.
- 28% on residential property gains for higher-rate taxpayers.
Annual Exemptions
Every individual is entitled to an annual CGT allowance, known as the Annual Exempt Amount, which is £3,000 for the tax year 2025/26. This means you can make gains up to this amount without paying any CGT. If your total gains exceed this allowance, the excess will be taxed.
Private Residence Relief
If you sell your main home, you may qualify for Private Residence Relief, which can exempt you from CGT on the gain. However, this exemption has limits if you have used part of the home for business purposes or rented it out.
Entrepreneurs’ Relief
Entrepreneurs selling their business can benefit from Business Asset Disposal Relief, which offers a reduced CGT rate of 10% on gains up to £1 million, subject to certain conditions.
CGT is an important tax that applies to profits made on the sale of assets. Understanding the exemptions, reliefs and rates that apply as part of your tax planning can help reduce the amount of CGT tax owed. For example, utilising your annual exemption, transferring assets between spouses or civil partners and timing the sale of assets can all be effective strategies.
If you have any questions regarding capital gains tax or tax planning in general please get in touch with our team of qualified financial advisers for a no obligation chat.
Imogen Tallent
Financial Adviser
Equity release is a useful tool for homeowners looking to access the value of their property in later life, but it’s important to fully understand the financial implications. It can provide immediate financial support, but it may reduce the inheritance you can leave for loved ones.
There are a number of different strategies to reduce your CGT liability depending on your individual circumstances and objectives.
These could include:
Bed and ISA – selling assets and rebuying them within an ISA to shelter future gains.
Gifting assets to a spouse or civil partner to use both CGT allowances.
Trusts and Family Investment Companies (FICs) to structure wealth tax-efficiently.
Using EIS & SEIS schemes, which offer CGT relief for investments in early-stage companies.
Working with a financial advisor could identify potential strategies for your specific circumstances and financial objectives.
Private Residence Relief (PRR) usually exempts your main home from CGT. However, if you own multiple properties or let out part of your residence, partial CGT may apply.
Working with a financial advisor to ensure you structure your assets can help to mitigate any CGT liability.
For the 2023/24 tax year, UK CGT rates are:
Shares & investments: 20% for higher and additional rate taxpayers.
Property (excluding main residence): 24% for higher and additional rate taxpayers.
The annual CGT allowance is £6,000 (reducing to £3,000 in 2024/25), meaning gains below this amount are tax-free.
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