Capital Gains Tax
A tax on the profit (gain) you make when you sell or dispose of an asset that has increased in value, such as shares, investment property, or business assets. The gain is calculated as the sale proceeds minus the original cost and allowable expenses. Rates vary depending on your income and the type of asset — residential property attracts higher rates than other assets.
How it works
You work out a capital gain by starting with the sale proceeds, deducting the original cost of the asset, and then deducting allowable expenses such as purchase costs, improvement costs, and costs of disposal like estate agent or legal fees. Only assets that have genuinely increased in value trigger a gain — if the sale price is lower than the original cost plus expenses, you make an allowable loss instead, which can offset gains elsewhere.
Reporting obligations differ by asset type: gains from shares or other assets are normally reported through your Self Assessment return by the usual 31 January deadline, while UK residential property other than your main home must be reported and paid within 60 days of completion under a separate real-time reporting service. Missing the 60-day deadline can trigger penalties even if you file your ordinary Self Assessment return on time.
Capital losses can be used to reduce gains in the same tax year, and any losses left over can be carried forward indefinitely to offset gains in future years, provided they are reported to HMRC, usually within four years of the loss arising. Which rate you pay on a taxable gain depends on both your income tax band and the type of asset, with residential property attracting higher rates than shares or other assets.
Example: working out a taxable gain
You bought shares for £10,000 and later sold them for £16,000, paying £500 in dealing and legal costs along the way.
Your gain is £16,000 minus £10,000 minus £500, which comes to £5,500. After deducting the £3,000 Annual Exempt Amount, £2,500 is left as your taxable gain, which is then taxed at the rate that applies to your income and the type of asset.
Frequently asked questions
Do I pay Capital Gains Tax when I sell my main home?
Usually not. Private Residence Relief generally exempts your main home from Capital Gains Tax, provided it has been your only or main residence throughout your ownership.
How do I report a capital gain to HMRC?
Most gains are reported through Self Assessment by 31 January, but UK residential property gains other than your main home must be reported and paid within 60 days of completion.
Can I offset a capital loss against a gain?
Yes. Losses reduce your gains in the same tax year, and any unused losses can be carried forward to offset gains in future tax years once reported to HMRC.
Related Terms
Annual Exempt Amount
The amount of capital gains you can make in a tax year before Capital Gains Tax becomes due, currently £3,000 for individuals.
Business Asset Disposal Relief (BADR)
A Capital Gains Tax relief on qualifying business disposals — charged at a flat rate of 10% for 2024/25, 14% for 2025/26, and 18% from April 2026 — up to a £1 million lifetime limit per individual.
Investors' Relief
A Capital Gains Tax relief that applies a reduced flat rate on gains from disposing of shares in unlisted trading companies, aimed at encouraging external investors in small businesses.
Residential Property CGT
Capital Gains Tax on gains from selling UK residential property that is not your main home, charged at 18% for basic-rate taxpayers and 24% for higher- and additional-rate taxpayers.
Effective Rate
The average rate of tax you pay across all your income, calculated by dividing your total tax bill by your gross income.
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