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Capital gains tax in the UK

UK capital gains tax explained

Until the government starts taxing sex, capital gains tax (CGT) is probably the most annoying tax to find yourself paying.1

Capital gains tax is levied on the profits you make when you sell or transfer most assets. These assets include shares, investment properties – even a stake in your own company.

Like a fly in your soup on your birthday, capital gains tax can really spoil the fun of making money.

Inheritance tax is a tax on your good fortune. Income tax is the cost of having a job.

CGT is a tax on investing success.

Take shelter from CGT! Always try to use tax shelters like ISAs and pensions to shield your investments from taxes where possible. No tax is payable on gains realised within these wrappers.

Of course, you won’t always make a profit when you sell an investment.

Sometimes you’ll lose money. That’s called a capital gains loss.

Unfortunately you don’t get money back from the government when you lose money.

However you can offset capital losses against your capital gains to reduce the total gain you pay tax on. You can also defuse unsheltered gains using your annual CGT allowance.

How UK capital gains tax works

Like income tax, CGT is calculated on the basis of the tax year. This runs from 6 April to 5 April the following year.

You pay tax on the total taxable gains you make selling assets in the tax year, after taking into account:

  • Your annual CGT allowance. (See below).
  • Other reliefs or costs that can reduce or defer the gains.
  • Allowable losses you made by selling assets that would normally be liable for CGT. (The opposite of a capital gain, in other words).

Everyone has an annual capital gains tax allowance, or ‘annual exempt amount’ in HMRC-speak. This allowance is £6,000 up to 5 April 2024. However, the allowance will be halved to £3,000 from the 6 April 2024, whereupon it will be frozen.

If your total taxable gains, minus any deductions, comes to more than your annual allowance, then you pay CGT on everything over that tax-free allowance.

Capital gains tax rates

There are several different rates for capital gains tax. The rate you’ll pay normally depends on two things:

  • Your total taxable income.
  • What sort of assets you’ve made a profit on. Second homes and buy-to-let properties are taxed at different rates from other assets.

For most taxable assets:

  • Basic rate taxpayers pay 10% on their capital gains.
  • Higher rate taxpayers pay 20%.

For second homes and buy-to-let properties2:

  • You’re charged 18% at the basic rate on your property gains.
  • Higher rate taxpayers pay 28%.

Your main home is nearly always exempt from capital gains tax under what’s called Private Residence Relief. This is automatically applied unless you’ve let your home out to more than a single lodger, used it for business, or if you’ve substantial acreage. In those cases, CGT might be payable.

Note that you might normally be a basic rate taxpayer, but pay a higher rate on your capital gains. This could happen if the money made via your gains moves you into the higher rate tax bracket.

To work out what rate you’ll pay, your capital gain is added to your taxable income from other sources (salary, dividends, savings interest, and so on).

It can get a bit complicated. See HMRC’s notes on working out your capital gains tax rate band.

What is CGT charged on?

Historically-speaking, CGT has been a fairly avoidable tax for most everyday investors in the UK.

(Remember, you’re allowed to mitigate your taxes. Tax evasion is illegal.)

However the big decline in the annual CGT allowance – from over £12,000 a few years ago to just £3,000 from 6 April 2024 – has made it much harder to mitigate a potential capital gains tax bill.

Putting assets into tax shelters where possible before they make any gains has thus become even more important.

Most capital gains on asset sales are taxable, but in the UK capital gains tax is NOT charged on:

  • Your main home (in 99% of cases)
  • UK Government bonds (gilts)
  • ISA and SIPP holdings
  • Personal belongings worth less than £6,000 when you sell them
  • Your car, unless used for business
  • Other possessions with a limited lifespan
  • Betting, lottery, or pools winnings (including spreadbets)
  • Money which forms part of your income for Income Tax purposes
  • Venture Capital Trusts
  • Certain business holdings that qualify for entrepreneur’s relief

That still leaves many key assets liable for UK capital gains tax:

Remember if you can hold these assets inside a tax shelter (ISA or pension) you’ll escape the clutches of capital gains tax.

As I’ve already mentioned, you also have that annual capital gains tax allowance. So you won’t necessarily be liable for CGT just because you’ve sold some taxable assets and made a profit. It all depends on your total gains for the year.

You might also be able to postpone paying your CGT bill by claiming deferral relief on certain special government-sanctioned investment schemes (EIS and SEIS). However these investments can be very risky.

Do your research, and don’t risk big losses just to cut your tax bill.

When to report capital gains tax

You need to report your taxable gains via your self-assessment tax return:

  • If your total taxable gain in the tax year exceeds your CGT allowance, and/or
  • If your sales of taxable assets are in excess of £50,000.

Under the current regime, if you sold £20,000 worth of shares in the year for a total gain of £5,000, there’s no need to report any of it. £5,000 in gains is below the 2023-2024 annual allowance. And your total sales were less than £50,000.3

In contrast, if you’d sold £55,000 of shares, say, you would have to report the details to HMRC, regardless of your total gain. You’ve sold taxable assets in the year excess of the £50,000 annual threshold.

Note that the prior annual reporting limit (which was set at four times the annual CGT allowance) was replaced in April 2023 by the fixed £50,000 figure.

Capital gains are pooled together

All capital gains and losses go into the same ‘pot’ from the Inland Revenue’s point of view.

For example, if you made a gain (that is, after your costs) of £15,000 selling shares and £8,000 selling an antique wardrobe, your total capital gain is £23,000.

Here losses might help you out.

For example, let’s imagine you make a taxable gain on your shares but a loss on selling your buy-to-let property. Your property loss can be offset against your capital gains on shares to reduce or even wipe out the tax bill that might otherwise be due.

See my article on avoiding capital gains tax for other strategies.

Who pays Capital Gains Tax in the UK?

Very few members of the general population ever pay capital gains tax.

A recent study of anonymised personal tax returns found that 97% of people never make any capital gains. And those who did were generally drawn from the ranks of the wealthy.

According to a Guardian story on the research:

Just 0.3% of people with income under £50,000 had taxable gains in an average year, compared with almost 40% of taxpayers with incomes over £5m receiving some gains.

Almost half of those who made a capital gain lived in the south-east. A quarter lived in London.

So we can see that paying capital gains tax puts you into a fairly exclusive club.

For investors, however, capital gains is an occupational hazard. If you are not able to do all of your investing inside ISAs and pensions, then you will pay CGT sooner or later.

Especially now that the annual CGT allowance has been slashed.

Capital gains tax and me

I’ve paid CGT. I wasn’t even very wealthy at the time. Certainly my annual income was no great shakes.

When I began investing 20-odd years ago, it was with a biggish lump sum that I’d originally saved up as a house deposit.

I should have steadily put this cash into ISAs over the ten years or so it took me to save it. But I was silly and I didn’t. And so when I began investing, I had to build up my ISA tax shelter capacity from scratch. One year’s allowance at a time.

Many years on this landed me with a five-figure CGT bill when I finally sold the last of my unsheltered investments – despite years of diligently defusing my gains along the way, as best I could.

This particular investment had gone up more than ten-fold since I bought it.

Lucky me you say, but remember I wasn’t super-rich. I began as just a determined saver trying to keep up with the runaway London housing market. My initial deposit comprised of several tens of thousands of pounds of hard-won savings that I could have spent instead on holidays, clothes, or simply having more fun in my 20s and 30s, like most of my friends did.

Which is why I write ‘make’ a capital gain, or even that you ‘earn’ such a gain.

Whereas The Guardian with its own biases says you ‘receive’ it. As if the capital gain just falls from the sky – like windfall.

That is true of an inherited gain, say, at least for the recipient. But capital gains nearly always come after you’ve put your own money at risk.

So do what you can to keep hold of the reward in full.

  1. Update: since I first wrote this article I bought my own home and paid Stamp Duty Land Tax at 5%. Turns out that’s just as annoying. []
  2. Held personally. Properties held via a limited company are on a different regime. []
  3. Remember, these are sales outside of an ISA or SIPP. Sales within shelters are not liable for CGT and not counted at all. []
{ 28 comments… add one }
  • 1 Minikins December 5, 2015, 12:15 pm

    Thanks for this no-frills guide, this has cleared up a discussion I had in the pub last weekend about what is actually subject to CGT. (Should have checked monevator there and then!) It would be good to have a couple of examples or case studies of taxable gains on sold assets taking into account allowable losses etc. It would help bring it to life.
    How about a portfolio of illustrative guides/tables from Monevator -a sort of ‘Dummyvator’ guide to….. and you could flog’em too 🙂

  • 2 The Investor December 5, 2015, 12:55 pm

    Hah! The irony is I think we have about the smartest readers in the UK personal finance blogosphere… 🙂

    I think it’s all the waffle, sub clauses and syllables that keep the riff raff away… 😉

  • 3 Haphazard January 11, 2017, 10:49 pm

    Thanks so much for this website, so clear and helpful for a beginner!

    Having never invested anything before, I’ve now acquired a lump sum to invest – it will take me over my ISA allowance – and can’t really use my annual pension allowance for the next year either as I’m at risk of redundancy so it’s a bit hard to predict what it will be.

    So – a taxable investment. As I’ve never really used fund platforms before, I wondered how helpful they are in providing information for the tax return (esp. on dividends that need to be declared in accumulation units, and on capital gains tax if you drip-feed or buy funds over time). Capital gains tax calculations look like they could turn out to be a nightmare if you feed money into funds more than once… I used to think I was too stingy to pay for an accountant but perhaps I should think again! And in any case, if I’m to make use of my annual capital gains allowance, I’ll need to have some idea what that is as I go. Is there a simple way to do this?

  • 4 The Investor January 12, 2017, 9:48 am

    @Haphazard — Capital gains tax is a pain. The platforms can’t really help you because they don’t know what assets you have elsewhere, so they can’t calculate the gains for you. You really have to keep records for yourself, via a spreadsheet or similar, of what you bought, when, and for how much.

    Beware too that if you buy a reinvesting income fund, that may make things even more confusing outside of tax shelters:

    http://monevator.com/income-tax-on-accumulation-unit/

    Tax shelters are the business for saving you hassle. Don’t forget you get a new ISA allowance in April (and it will rise to £20,000), which may give you the opportunity to spread your money over two tranches of ISAs.

    Finally, please note the article above is out of date, and needs updating, with respect to the rates payable!

  • 5 Haphazard January 12, 2017, 10:25 am

    Thanks for the answer! That does look messy…and I’d thought accumulation units were the thing to buy if you were saving for retirement. If only we were allowed to carry forward unused ISA allowances from the years of famine. Never mind, I think I’ll end up having to bite the bullet and pay for an accountant for a few years until I manage to convert the whole lot into ISAs.

  • 6 The Investor January 12, 2017, 11:24 am

    @Haphazard — You can use income units for ease of accounting, and remember there’s a new dividend tax allowance which means the first £5,000K of dividends (from all sources you have) are tax-free. So if your equity fund yielded say 5%, it could be over £100K before you start paying tax on the dividends.

    But please note as I say this isn’t specific advice to you, I’m not a qualified tax advisor and anyway don’t know your circumstances.

    An accountant sounds like a good idea, in your situation, but make sure you find one that is clued up about investing. Not all of them are.

  • 7 Haphazard January 12, 2017, 11:58 am

    Yes – I’ve started looking and that’s exactly what I found! When I look at the websites of local accountants, there is just no mention of dealing with tax on investments, and most of them seem to focus on other areas. I’ll keep looking. I just want the peace of mind, really – I’m absolutely happy to do my own financial planning (thanks to excellent websites like this one!) but I’d be far less confident with tax from what I’ve seen.

  • 8 splidge March 28, 2017, 11:37 am

    I’m not sure where the £11,500 figure for the CGT “allowance” (AEA) came from.

    It’s £11,100 for 2016-7 and £11,300 for 2017-8.

  • 9 The Investor March 28, 2017, 12:58 pm

    @Splidge — Ah, rats! Thank you. Seven years to update the numbers and I’m foiled by a typo. I’ve also clarified the two different annual exempt amounts from this year and next, which I should have done in the first place really. No fun updating this old stuff.

  • 10 John B March 28, 2017, 5:18 pm

    Handy tip: If the sales are less than 4*allowance (ie 44400) you only need to mention them on a tax return if there is a taxable gain. If sales are above that you need to report them even if there is no tax to pay.

  • 11 The Investor March 28, 2017, 6:11 pm

    @John B — Yes, I decided to leave that detail out, despite it being a factor for me most years in the past five. Do you think it should go into the article?

  • 12 John B March 28, 2017, 7:37 pm

    I was rather worried about calculating CGs for a drip-fed account. Finding the 4*allowance rule allowed me to avoid doing a tax return for 3 years as I emptied it, so I was very grateful for it, and its not widely known

  • 13 The Investor March 29, 2017, 10:06 am

    @John B — Okay, cheers for the feedback, I’ve added a bit about the four-times rule. I do worry it’s getting a bit wordy, but I think you’re right we should include it… I’ve had to report my details even when below the CGT allowance on the basis of total sales (and it will happen quite often with property).

  • 14 edel March 29, 2017, 2:33 pm

    Thank you for this article – I had a lot of questions about investing outside of an ISA/SIPP (if I ever have enough money to do that!) and this article is a wonderful guide for someone with no clue so thank you! and thank you as always for your time taken in doing these wonderful articles! This site is a wealth of information!

  • 15 Paula March 31, 2017, 10:29 pm

    Great article and very timely as I’m thinking of selling shares I have in a taxable account. Was aware of CGT allowance but not the 4* allowance/rule. Also a reminder to use CGT allowance before the tax year ends (next week!).

  • 16 UXR April 7, 2017, 8:21 pm

    Do the same capital gains and dividends allowances apply to shares held with a stockbroker abroad?

  • 17 The Investor April 8, 2017, 9:18 am

    @UXR — I’m not sure about assets literally held overseas, I’ve never done it. You do have to pay UK taxes on foreign assets held with UK brokers — the fact that you’ve bought say US stocks is irrelevant from HMRC’s perspective. I would presume the same is true if you hold them with a foreign broker, unless you’re doing something tricksy with residency and so forth that is beyond my domain.

    Watch out for withholding taxes, too. This is where foreign governments will tax you on those overseas assets. Sometimes you can avoid such double taxation by filling in the appropriate forms. See these two articles for more on your questions:

    http://monevator.com/expat-investing-and-tax-us-and-uk/

    http://monevator.com/withholding-tax-on-dividends/

  • 18 UXR September 9, 2017, 5:41 pm

    @The Investor – Thanks. I actually had this clarified with a tax accountant few weeks ago.

    Dividends / gains from shares held abroad do not count against UK allowances. Withholding taxes paid (the minimum that one needs to pay in majority cases – certainly in mine) can only be deducted against gains and dividends in the UK that are ABOVE the allowances limit in the UK (£11,100 on gains and £5,000 on dividends). In other words, one needs quite a sizeable investment in the UK (which also has to be outside ISA), before one can get back withholding taxes paid abroad…

  • 19 The Investor September 9, 2017, 9:34 pm

    @UXR — Thanks for coming back and sharing that. Hopefully some other readers of this page in a similar predicament to you will find your sleuthing helpful in the future. 🙂

  • 20 Alex P September 11, 2017, 8:36 pm

    Hello all,
    Does anyone on this thread use software to work out how to use their CGT allowance? My circs are as follows: I’m going to sell a 2nd home. The profits will prob all be fed into the Vanguard FTSE Global All Cap Index Fund, so only one fund. My ISAs are already spoken for, so the proceeds will go into a trading account. Each year that a profit is possible (i.e. if the market goes up!), I’ll want to sell whatever is required to use all of my CGT allowance. Obv the price of a unit will change daily, but there must be useful software that, with the requisite data entered, will tell me how many units to sell to achieve a profit of, say £11,100 or whatever the limit is.

    Any ideas? I’d love to know how anyone else does it.

  • 21 Gary Evans May 9, 2022, 4:18 pm

    How does CGT work on an estate if a property is sold for a profit? I.e. if the sale price was much larger than the probate price.

    I assume there is no personal allowance, but what rate is it charged at?

  • 22 NearlyThere May 10, 2022, 8:25 am

    As I recall, the estate/executors effectivity get a tax year, with various allowances. So gains, dividends etc received during probate are taxed at those rates not at IHT rate. No doubt HMRC will pay attention to whether the probate valuation was reasonable. See for example https://www.gov.uk/probate-estate/managing-and-selling-assets

  • 23 Jonathan B May 12, 2022, 8:28 pm

    @Gary Evans – estates are a legal entity for taxation, with as you recognise the base for any capital gain taken as the probate valuation on which IHT was paid. They have slightly different allowances from people, and are taxed as if higher rate income tax payers.

    I was executor for my mother’s estate, and had to fill in the special estate tax form a couple of years ago. Her house sold for significantly more than probate due to a bidding war; the gain was taxed at 28% which was less than the 40% which would have been payable in IHT. On the other hand she had share investments in an AIM portfolio constructed to be exempt from IHT but happened to die at a time when share prices had a dip, so those ended up with CGT of 20% which was obviously worse than the 0% IHT. Swings and roundabouts.

  • 24 D March 9, 2023, 3:38 pm

    I noticed this article was updated recently – but not sure if further posts are accepted on this subject as none since 2022.

    I am new to investing (mainly just have index funds) and so not dealt with CGT before.

    I was just wondering as I have read that costs/expenses can be deducted from the capital gain – such as dealing charges but would this go as far to include the portion of percentage platform fees charged on holding the funds (or flat fees charged monthly such as those charged by Interactive Investor).

    I assume it won’t allow these to be deducted but they are costs/expenses/fees/charges of holding the funds so just wondered if someone could clarify please.

  • 25 The Investor March 9, 2023, 3:57 pm

    @D — I really don’t know, but my expectation would be not as they would presumably not be wholly incurred with the purchase/disposal of the asset in question. Maybe if you only held one asset on the platform that might be different.

    However I am not an accountant or tax adviser, and this is definitely not personal advice. Seek out a professional to be sure!

    Please do come back and let us know what you find out if you do. 🙂

  • 26 D March 13, 2023, 3:55 pm

    @TI – Just to let you know, and any others who may be interested, what I found out about fees/charges that are deductible from your capital gain as you had asked.

    I had looked around at many tax websites and none really gave an answer. Looked on HMRC website regarding CGT and it only gives this:

    “Deduct costs:
    You can deduct certain costs of buying or selling your shares from your gain. These include:
    – fees, for example stockbrokers’ fees
    – Stamp Duty Reserve Tax (SDRT) when you bought the shares

    Contact HM Revenue and Customs (HMRC) if you’re not sure whether you can deduct a certain cost.”

    So says stockbrokers’ fees but doesn’t say which ones?

    I found HMRC have started a new online community forum (in beta testing) where you can post questions to them but I did this 4 days ago and no reply as yet. So decided to ring them and wait on the phone (around 45 minutes).

    Spoke to a helpful lady in the Capital Gains Tax section. She went away to clarify with someone else but basically said what you yourself thought, in that the fees are those incurred in buying/selling (usually those at the point of sale).

    When I said that a lot of brokers nowadays charge no dealing fees but only an overall monthly or quarterly management/custody/holding charge and that, I would assume, at least some of that would be to cover their costs of dealing. (Presumably though also those brokers that only have dealing fees and no other fees then some of those dealing fees must go towards their admin/management costs or how otherwise do they operate?)

    She went away again and then said that if you can ascertain from your broker precisely how much of that monthly/quarterly “charge” is for costs associated with buying/selling (as opposed to other things such as management/admin costs) then it could be allowed and she said you would obviously have to have the calculations to back it up. I said in calculating it would I just take this allowable part of the charge and then just apportion it to the “disposed” funds to which she said “yes.”

    I also said I didn’t think a telephone conversation with a customer services person at a broker would be sufficient as proof on a CG tax return if they questioned it later (and I have found many times that brokers’ customer support staff over telephone often give inaccurate/incorrect information.) She agreed and said it would really need to be something in writing kept as evidence – so probably would have to be an email from them at least.

    I have doubts whether most brokers would provide customers with this information though, even if you explain why you want it, but the HMRC lady said they should obviously know how much buying/selling costs them so should be able to provide it.

    So maybe we can legally deduct a proportion of these percentage/flat fee account charges but only if we can find out from the broker what proportion are associated with buying/selling only, I will ask my brokers when it comes to it – but in practice I think slim chance really. Can but try anyway!

  • 27 The Investor March 13, 2023, 7:43 pm

    @D — Thanks for coming back and sharing all that detail. So yes, basically what we suspected but good to have it confirmed.

  • 28 Stuart B November 19, 2023, 7:20 pm

    With CGT rapidly becoming far less easy to avoid 🙂 I find myself reading back some of these older articles. Couple of points in case of use to anyone…

    1. As you mention on your article about avoiding CGT, make sure to record any losses on your self assessment even if you don’t have any gains to set them off against. They can be reported up to 4 years after the loss, so perhaps take a look to see if you’ve missed any before the Jan self-assessment deadline. Once reported they can be carried forward indefinitely (I’m just using up some reported in 2014 – not particularly efficient, but useful with dwindling allowances).

    2. You mention that UK government bonds (gilts) are exempt from CGT, but perhaps worth noting that the coupon interest is taxable as income. So, choose bonds with a low coupon and a higher capital gain.

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