Capital gains tax: the basics everyone with investments should know

Capital gains tax (CGT) is charged on the profit when you dispose of something that's increased in value — shares and funds outside ISAs and pensions, second properties, businesses, valuable possessions. Not the sale price: just the gain.

What's taxed and what isn't

You pay CGT on gains above your annual exempt amount of £3,000 per year. It doesn't carry over — use it or lose it each tax year.

Key exemptions: your main home (usually fully exempt under private residence relief), anything inside ISAs and pensions, cars, and gains on assets given to your spouse or civil partner (more on why that's useful below). Death also wipes the CGT slate — assets pass to your estate at market value with no CGT, which matters for estate planning.

The rates

CGT rates are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers, for both residential property and other assets. Gains are added on top of your income to determine which rate applies — so a large gain can straddle both, with part taxed at 18% and the rest at 24%.

One deadline trap: sell a UK residential property at a gain and you must report and pay the CGT within 60 days of completion — not at the January self-assessment deadline.

How the calculation works

Gain = disposal proceeds − what you paid − allowable costs (purchase and sale costs, improvement costs on property — not maintenance). Capital losses offset gains in the same year, and unused losses can be carried forward indefinitely if reported to HMRC — reporting losses in bad years is genuinely worth the admin.

The planning levers

Use the exemption every year. Investors sitting on large fund or share gains can sell just enough each year to use the £3,000 exemption, often rebuying similar (not identical — the "30-day rule" blocks immediate rebuying of the same asset) or rebuying inside an ISA. Done annually, this steadily washes gains out of a portfolio tax-free.

Spouses are a team. Transfers between spouses and civil partners are CGT-free, and the recipient inherits the original cost. That means a couple can use two annual exemptions, and route gains through whichever partner pays the lower rate. Moving assets to a basic rate spouse before sale can cut the rate on gains from 24% to 18%.

Timing. Straddling a sale across two tax years uses two exemptions. Realising gains in a low-income year (career break, early retirement before pensions start) can keep more of the gain in the 18% band.

Pension contributions can extend your basic rate band, pulling gains that would have been taxed at 24% down to 18% — a nice double win.

This article is for general education only and isn't tax advice. Larger disposals — a second property, a business, a big share portfolio — almost always justify proper planning before the sale, not after. Get in touch if that's on your horizon.