Capital Gains Tax – What You Need to Know

When dealing with capital gains tax, the levy on profit made when you sell or dispose of an asset. Also known as CGT, it applies to everything from property to shares and impacts both personal and business finances.

Tax exemption, the portion of gain you can keep tax‑free (for example the annual annual exempt amount) plays a big role in lowering your bill. Investment asset, any item you own that can appreciate in value, such as stocks, land or a second home, triggers the tax when you sell it for more than you paid. Finally, CGT rate, the percentage applied to your taxable gain, varies by income level and asset type, determines how much you actually hand over to HMRC.

Capital gains tax encompasses profits from selling assets, which means every time you cash in on a rising investment, the tax machinery kicks in. The tax requires accurate reporting to HMRC, so keeping good records of purchase price, dates and related costs is essential. Tax exemptions influence the amount of capital gains tax owed, often shaving off a sizable chunk of the liability. Investment assets generate capital gains that may be taxed, but the type of asset can change the rate you face. CGT rates affect how much tax you pay on gains, with higher‑rate taxpayers paying more than basic‑rate earners.

Key Factors That Shape Your CGT Liability

First, the type of asset matters. Selling a residential property that isn’t your main home usually attracts a higher CGT rate than disposing of shares held in a tax‑advantaged account. Second, your personal income determines which rate applies – basic‑rate taxpayers pay 10% on most assets (18% on residential property), while higher‑rate taxpayers face 20% (28% on property). Third, the annual exemption lets you keep a set amount of gain tax‑free each year; for 2025/26 it’s £6,000, so many small gains disappear without a trace.

Don’t forget reliefs and deductions. If you’re a business owner, entrepreneurs can claim Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) to cut the rate down to 10% on qualifying disposals. Charitable donations, certain costs of buying and selling, and improvements to a property can be deducted from the total gain, shrinking the taxable figure. Finally, the timing of the sale can be strategic – spreading disposals over multiple tax years may keep you below the higher‑rate threshold and maximise the annual exemption.

Keeping a record‑keeping system is non‑negotiable. Document purchase invoices, sale contracts, improvement costs, and any brokerage fees. A simple spreadsheet with columns for date, description, purchase price, sale price, costs, and the resulting gain will save you headaches when you file your Self‑Assessment. HMRC expects you to report gains on the SA100 form, using the Capital Gains Summary (SA108). If your total gains after exemptions stay under the reporting threshold, you still need to tell HMRC, but the process is straightforward.

What about foreign assets? Gains on overseas property or shares are also subject to CGT, but you may need to convert foreign currency to pounds and account for any double‑taxation relief if the other country taxed the gain first. For UK residents, the rules stay the same – the gain is measured in GBP, and any foreign tax paid can be offset against your UK liability, preventing you from paying twice.

In practice, many people underestimate how quickly CGT adds up. A modest gain on a second home, combined with a share sale that pushes you into the higher‑rate band, can double the tax you expected. Planning ahead, using exemptions wisely, and understanding the interplay between rates and asset types helps you keep more of your hard‑earned money.

Below, you’ll find a curated set of articles that dig deeper into each of these areas – from step‑by‑step reporting guides to real‑world examples of how exemptions can save you money. Whether you’re a first‑time seller or a seasoned investor, the collection offers practical tips and clear explanations to help you navigate capital gains tax with confidence.