What Is Capital Gains Tax and When Do You Pay It?

Capital Gains Tax sounds more complicated than it is. In plain terms, it is a tax on the profit you make when you sell something that has gone up in value. Not the whole amount you sell it for, just the profit, the gain.

This guide explains what Capital Gains Tax is, when you have to pay it, what you do not pay it on, and how much it costs. No assumed knowledge.

What Capital Gains Tax actually is

When you sell an asset for more than you paid for it, the difference is your gain. Capital Gains Tax, often shortened to CGT, is the tax on that gain.

Say you bought something for £10,000 and later sold it for £15,000. Your gain is £5,000, and that is the figure CGT looks at, not the full £15,000. You are taxed on the profit, not the sale price.

It does not only apply when you sell, either. Giving an asset away or swapping it can also count as a disposal, which is the word HMRC uses for parting with something.

What you pay it on

CGT applies to a range of assets. The most common are:

• Property that is not your main home, such as a second home, a buy-to-let, or an inherited property you later sell
• Shares held outside an ISA
• Crypto, when you sell it, swap one coin for another, or spend it
• Business assets
• Valuable personal possessions worth more than £6,000, such as art or jewellery

What you do not pay it on

Just as important is what is exempt:

• Your main home, in most cases, thanks to a relief explained below
• Anything inside an ISA, including shares and the gains on them
• Personal belongings worth £6,000 or less
• Your car, in normal personal use
• Gifts to your spouse or civil partner, or to charity

The tax-free allowance

Everyone gets an annual exempt amount, a slice of gains you can make each tax year before any CGT is due. For 2025/26, that allowance is £3,000 per person.

So if your total gains for the year are within £3,000, there is usually no CGT to pay. Only the gains above the allowance are taxed. And because the allowance is per person, a couple who jointly own an asset each get their own £3,000, doubling the tax-free amount between them.

It is worth knowing this allowance has dropped sharply in recent years, from £12,300 a few years ago down to £3,000 now. That means gains are taxed much sooner than they used to be.

How much you pay

The rate of CGT depends on your income. For 2025/26, you pay:

• 18% on gains that fall within your basic-rate income band
• 24% on gains above that, in the higher-rate band

The way it works is that your gain is added on top of your income for the year. If you are already a higher-rate taxpayer, the whole gain is likely taxed at 24%. If you are a basic-rate taxpayer, part of your gain might be taxed at 18% and part at 24%, depending on the size of the gain.

These rates apply across the board now, to property, shares and crypto alike.

A quick example

Yusuf, a higher-rate taxpayer, sells some shares he holds outside an ISA. He bought them for £8,000 and sells them for £20,000, giving a gain of £12,000.

First, he takes off his annual exempt amount: £12,000 minus £3,000 leaves £9,000 of taxable gain. As a higher-rate taxpayer, that is taxed at 24%, giving a Capital Gains Tax bill of £2,160. If those same shares had been held inside an ISA, there would have been no CGT at all.

Your main home is usually safe

One of the most common worries is whether you will be taxed when you sell your home. For most people, the answer is no. A relief called Private Residence Relief usually means there is no CGT to pay on your main home.

There are situations where it gets more complicated, for example if you let the property out for a while or used part of it solely for business. We cover that in a separate guide.

When and how you report it

How you report CGT depends on the asset. If you sell a UK residential property and there is tax to pay, you usually have just 60 days from completion to report it and pay, through a separate HMRC service. For other assets, like shares or crypto, you generally report the gain on your Self Assessment tax return.

Getting this right, and on time, matters, because missing the property deadline in particular can lead to penalties.

Not sure where you stand? We can help

Capital Gains Tax has a lot of moving parts, and the rules have changed a lot recently. A chartered accountant works out exactly what you owe, claims any reliefs you are entitled to, and handles the reporting for you. You fill out one form, and we take it from there.