Understanding Capital Gains Tax (CGT): What It Is and When It Applies

Written By Frederika Clay

If you’ve ever sold a valuable asset like a second property, shares, or a business, you may have come across Capital Gains Tax (CGT). With reductions to CGT allowances, this tax is becoming a more significant consideration for investors and individuals planning their finances.

 

In this post, we’ll break down the key facts:

  • What is CGT?

  • When does it apply?

  • What assets are affected?

  • And how can you manage your exposure?

 

What is Capital Gains Tax?

Capital Gains Tax is a tax on the profit (or gain) you make when you sell or dispose of an asset that’s increased in value. You're not taxed on the total amount you receive—only on the gain you've made.

For example:
If you bought shares for £10,000 and later sold them for £15,000, your gain is £5,000. This is the amount potentially subject to CGT.

 

When Does CGT Apply?

You may need to pay CGT when you sell, give away, exchange, or otherwise dispose of:

  • Shares or investments not held in an ISA or pension

  • Second homes or buy-to-let properties

  • Personal possessions worth over £6,000 (excluding your car)

  • Business assets, such as land, buildings, or equipment

  • Certain cryptocurrencies

CGT doesn’t typically apply to your main residence, money held in cash accounts, or assets passed to a spouse or civil partner.

 

What Are the Current CGT Allowances?

As of the 2024/25 tax year, the annual CGT allowance (known as the Annual Exempt Amount) has been significantly reduced to:

  • £3,000 for individuals

  • £1,500 for most trusts

Any gain above this allowance is subject to tax, with rates depending on the asset type and your income tax band.

 

What Are the Current CGT Rates?

The Autumn Budget 2024 introduced significant changes to CGT rates and allowances, effective from 30 October 2024.

  • Main CGT Rates:

    • Basic Rate Taxpayers: Increased from 10% to 18%

    • Higher/Additional Rate Taxpayers: Increased from 20% to 24%

  • Residential Property:

    • Rates remain at 18% for basic rate taxpayers and 24% for higher rate taxpayers.

  • Business Asset Disposal Relief (BADR) and Investors’ Relief:

    • Rate increases from 10% to 14% for disposals on or after 6 April 2025

    • Further increase to 18% for disposals on or after 6 April 2026

    • Investors’ Relief lifetime limit reduced from £10 million to £1 million for disposals on or after 30 October 2024.

Note: The gain pushes into your income tax band—so you could be partly taxed at both rates.

 

When and How Do You Report CGT?

If you make a taxable gain, you’ll usually report it via a self-assessment tax return or using HMRC’s real-time CGT service for residential property sales (within 60 days of completion).

It’s important to keep detailed records of:

  • Purchase and sale prices

  • Fees (e.g. solicitor, estate agent, broker)

  • Improvement costs (for property)

  • Evidence of ownership

 

CGT Planning Tips

Here are a few ways to help manage your CGT exposure:

  • Use your annual allowance: If you haven’t used it, consider realising gains up to £3,000 per year, this is a ‘use it or lose it’ allowance, if you’ve not used the allowance in a particular year you can’t roll it up to use it the following year.

  • Transfer assets to a spouse: Married couples and civil partners can transfer assets tax-free and use two allowances.

  • Make use of ISAs and pensions: These wrappers shield your investments from CGT.

  • Offset losses: You can use losses to reduce taxable gains, either in the same year or carried forward.

  • Consider investment bonds: These can offer tax deferral and are not subject to CGT (see our separate blog on this topic).

 

Is CGT Affecting Your Investment Strategy?

With the reduced allowance and potential for higher tax bills, now is a good time to review your investment holdings and explore ways to manage CGT more effectively.

As financial advisers, we can help you:

  • Assess your CGT position

  • Optimise the use of allowances across your household

  • Structure your investments in the most tax-efficient way

If you'd like to explore how CGT might affect your situation, or how to reduce your liability, get in touch for a no-obligation chat.

  • This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

  • An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

  • The Financial Conduct Authority (FCA) does not regulate direct investments into crypto-assets or NFT’s. There are no consumer protections (including FSCS protection) for those who buy crypto-assets or NFTs. If you buy crypto-assets or NFTs you should be prepared to lose all the money you invest.

  • The taxation of the investment is dependent on the individual circumstance of each investor, and may be subject to change in the future.

Frederika Clay
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