Capital Gains Tax (CGT) sounds complicated because people talk about it in tax jargon. In real life, it’s built on one simple idea:
If you sell something for more than you paid for it, the profit may be taxable.
Where most beginners get stuck is everything around that profit: what counts as a “sale”, which assets are included, which costs you can deduct, how your income affects the rate, and how to report it on time.
This guide breaks CGT down step by step with clear UK examples, plus the key rules you need if you sell shares, crypto, or a second property.
Capital Gains Tax Explained In Plain English
What counts as a gain
A capital gain is the profit you make when you “dispose of” an asset (HMRC’s word for selling, gifting, swapping, or transferring in certain ways).
The basic calculation starts like this:
Disposal value minus what you paid minus allowable costs = gain
What you usually pay CGT on
In the UK, CGT commonly applies when you dispose of “chargeable assets” such as:
- property that is not your main home
- shares not held inside an ISA or PEP
- most personal possessions worth £6,000 or more (apart from your car)
- business assets
When CGT may apply to your main home
Many people never pay CGT on their main home because Private Residence Relief can wipe it out. GOV.UK says if your home meets the conditions you “will automatically get” Private Residence Relief and have no tax to pay, but you may have tax to pay in situations like letting it out, using it for business, or if it is very large.
The biggest beginner misunderstanding
CGT is not based on the amount of money you receive.
It is based on your profit, after costs, losses, and reliefs. Once you get that, CGT becomes a numbers exercise rather than a mystery.
The Current UK Capital Gains Tax Allowance And Rates
CGT rules change over time, so always check the latest HMRC guidance if you’re selling something valuable this year.
The CGT annual allowance
For individuals, the Annual Exempt Amount (your CGT allowance) is £3,000 and it is fixed at that level for 2024 to 2025 and subsequent years under the published HMRC policy note.
That means you only start paying CGT on gains above your allowance (after using any losses you can claim).
Current CGT rates for individuals
From 6 April 2025 onwards, GOV.UK lists the main CGT rates for individuals (excluding carried interest) as:
- 18% and 24% (depending on how your gain sits within or above your basic rate band)
GOV.UK also shows:
- 32% for carried interest gains
- 14% for gains qualifying for Business Asset Disposal Relief and Investors’ Relief (from 6 April 2025 onwards)
Why your salary affects your CGT rate
HMRC effectively looks at your taxable income first, then “stacks” gains on top to see what portion falls within the basic rate band and what spills above it. GOV.UK’s rate explanation follows this structure.
So two people can make the same gain and pay different CGT because their income positions are different.
How To Calculate Your Capital Gain Step By Step
If you want one practical takeaway from this whole post, it’s this section.
Step 1 List every disposal you made
Write down anything you disposed of in the tax year, including:
- shares and funds held outside ISAs
- crypto disposals (selling, swapping, spending)
- property sales (especially second homes or buy to lets)
- valuable personal items sold at a profit
Step 2 Work out the gain on each item
Start with:
What you sold it for minus what you paid
For gifts and some transfers, special market value rules can apply, so if you’re doing anything unusual, treat that as a “get advice” moment.
Step 3 Deduct allowable costs
HMRC lets you deduct certain costs directly linked to buying, selling, or improving the asset.
For property, GOV.UK says you can deduct costs of buying, selling, or improving your property such as:
- estate agents’ and solicitors’ fees
- improvement works such as an extension (normal maintenance like decorating does not count)
GOV.UK also notes you cannot deduct some costs such as interest on a loan used to buy the property.
Step 4 Offset losses where applicable
If you made capital losses, they can reduce your taxable gains.
GOV.UK explains that you claim losses on your tax return (or by writing to HMRC if you’re not in Self Assessment), and you can claim up to 4 years after the end of the tax year you disposed of the asset.
Step 5 Apply your £3,000 allowance
Once your gains are netted down by losses and allowable costs, you apply your annual CGT allowance.
Step 6 Apply the correct rate
Your rate depends on how the gain falls within or above your basic rate band as explained on GOV.UK.
Example 1 Shares outside an ISA
You buy shares for £8,000.
You later sell them for £14,500.
You paid £100 in platform dealing fees.
Gain:
- £14,500 − £8,000 − £100 = £6,400
If you have no other gains or losses and you still have your full allowance:
- £6,400 − £3,000 = £3,400 taxable gain
Now apply the correct rate based on your income band.
Example 2 Crypto
If you buy crypto for £2,000 and later dispose of it when it’s worth £8,500, your starting gain is:
- £8,500 − £2,000 = £6,500
Then you deduct allowable fees, offset any losses, apply the £3,000 allowance, and apply the correct rate based on your income band.
Crypto is where record keeping matters most. If you cannot evidence your numbers, you make your life harder.
Capital Gains Tax On Property Second Homes And Buy To Let
Property CGT matters because it can involve bigger gains and tighter deadlines.
Your main home is often exempt
If your home qualifies, GOV.UK says you’ll automatically get Private Residence Relief and have no tax to pay, but you may have some tax to pay if you let it out, used it for business, or it is very large.
Second homes and buy to lets are common CGT triggers
If you sell:
- a buy to let
- a second home
- a property that was not your main residence for the full ownership period
you may have CGT to pay on the gain.
Costs that can reduce your property gain
GOV.UK says you can deduct costs of buying, selling, or improving your property including solicitor and estate agent fees and improvement works, but not normal maintenance.
Keeping a folder of receipts can save you real money later.
The 60 day reporting and payment rule for UK residential property
If you sold UK residential property on or after 6 April 2020, GOV.UK says you must report and pay any CGT due within:
- 60 days if the completion date was on or after 27 October 2021
- 30 days if completion was between 6 April 2020 and 26 October 2021
Missing this deadline can lead to interest and penalties.
Extra note for non UK residents
GOV.UK states that if you’re not a UK resident, you must report all sales of UK property or land on or after 6 April 2020, even if there is no tax to pay.
Legal Ways To Reduce Your Capital Gains Tax Bill
This is where “smart” beats “stressful”. The goal is not tricks. It’s using the rules properly and planning ahead.
Use your allowance every tax year
With a £3,000 allowance, planning matters more than ever. Spreading disposals across tax years can let you use the allowance more than once.
Shelter investments with ISAs
Shares held inside an ISA are not subject to CGT. So long term investors often consider moving holdings into an ISA over time (often called “Bed and ISA” in the industry) to reduce future CGT exposure.
Use losses on purpose
Losses can reduce gains, and GOV.UK allows you to claim losses up to 4 years after the end of the relevant tax year.
Transfer assets to a spouse or civil partner
If you and your spouse or civil partner are living together, HMRC’s help sheet explains that a transfer between you is treated as creating no gain and no loss for the person transferring it.
Why this can help:
- you may use two CGT allowances between you
- you may be able to use a lower rate if one partner has lower taxable income
This needs to be done properly and ahead of disposal.
Gifts to charity
GOV.UK says you do not have to pay CGT on assets you give away to charity (though different rules can apply if you sell to a charity for more than you paid but less than market value).
Business Asset Disposal Relief
If you are selling qualifying business assets, GOV.UK lists 14% for gains that qualify for Business Asset Disposal Relief and Investors’ Relief from 6 April 2025 onwards.
Eligibility rules are specific, so this is a “read the criteria and get advice early” area.
Reporting Deadlines Records And A Simple CGT Checklist
This is where many people get caught out. Not because they intended to do anything wrong, but because deadlines and reporting rules are easy to miss.
When you must report even if no tax is due
GOV.UK says if your total gains are under the allowance, you still need to report your gains in your tax return if:
- the total amount you sold the assets for was more than £50,000, and
- you’re registered for Self Assessment
Reporting and payment dates for gains other than the property 60 day service
If you have other capital gains to report, GOV.UK states you must report by 31 December in the tax year after you made the gain and pay by 31 January.
What records you should keep
Keep a simple folder (digital is fine) containing:
- buy and sell contract notes for shares and funds
- platform statements showing fees
- crypto exchange exports and transaction IDs
- property completion statements and receipts for improvements
- solicitor and estate agent invoices
- a list of dates (buy date, sell date, completion date)
CGT checklist
- List every disposal you made this tax year
- Work out gains on each item
- Deduct allowable costs
- Offset losses and claim them if needed
- Apply the £3,000 allowance
- Apply the correct rate based on your income band
- If you sold UK residential property and CGT is due, report and pay within 60 days if the completion date rules apply
- If you’re in Self Assessment, check the £50,000 proceeds reporting rule
- Save your evidence in one folder so reporting is painless
Disclaimer
This article is for educational and informational purposes only and does not constitute tax advice, financial advice, or a recommendation to take any action. Tax rules and rates can change and your personal circumstances matter. If you’re unsure, especially with property, business sales, or complex portfolios, consider speaking with a qualified tax adviser or accountant.