Understanding Capital Gains Tax in the UK

A simple guide to how capital gains tax works in the UK, including current rates and your annual allowance.

What is Capital Gains Tax?

Capital gains tax (CGT) is a tax you pay on the profit when you sell something that has increased in value. It's the gain you make that's taxed, not the total amount you receive. For example, if you bought shares for £10,000 and sold them for £15,000, your gain is £5,000 – this is what might be taxable.

What Do You Pay CGT On?

You typically pay CGT when you sell investments like shares or funds (outside ISAs), sell a second property, or sell valuable personal possessions worth £6,000 or more. The good news is that you don't pay CGT on your main home, anything you hold in an ISA, or personal possessions worth less than £6,000.

Your Annual Tax-Free Allowance

Everyone in the UK gets an annual CGT allowance. For 2025/26, this is £3,000. This means you can make £3,000 in gains each year without paying any tax. If your total gains for the year are less than this, you have nothing to pay. Only gains above this amount are taxable.

How to Calculate Your CGT

To work out your CGT, add up all your gains for the tax year (6 April to 5 April). Subtract your annual allowance of £3,000. The remaining amount is taxable at the rates above. You can also deduct certain costs, like broker fees when you bought and sold the investment.

Simple Ways to Reduce CGT

The easiest way to avoid CGT is to use your ISA allowance – any investments held in an ISA are completely tax-free. You can also use your annual CGT allowance strategically by spreading sales across tax years. If you're married or in a civil partnership, you can transfer assets to your spouse tax-free, which lets you both use your annual allowances.

When Do You Need to Report CGT?

You must report capital gains to HMRC if your total gains are above the annual allowance, or if you sell assets worth more than four times the annual allowance (£12,000 for 2025/26), even if your gains are below the threshold. You report this through Self Assessment by 31 January following the tax year. For property sales, you may need to report within 60 days of completion.

How We Can Help

At Harmond Capital, we help clients structure their investments tax-efficiently. We'll make sure you're making the most of your ISA allowances and CGT exemptions, and we can advise on timing investment sales to minimise your tax bill. Good planning can save you thousands in unnecessary tax.