Capital gains tax: what it is, how it works and what to avoid
Don't understand what capital gains tax (CGT) is? In this guide, we'll reveal what it is, how much your CGT allowance is and how to reduce your tax bill.
Capital gains tax is a tax on gains made on the value of your assets.
CGT is not automatically deducted by HMRC, so you need to report it.
Anytime you sell a taxable asset and receive more for it than you paid, CGT will usually apply.
There are a few points to consider to help reduce your capital gains tax bill and it may be worth getting financial advice.
What is capital gains tax?
You may have heard of capital gains tax (CGT), but do you know what it is and how it works?
Capital gains tax is a tax on selling or giving away assets where you’ve made a gain.
This can include the sale of shares, for example, or the sale of business assets or a buy-to-let property.
It can also apply to valuables worth £6,000 or more (excluding your car) if you sell them at a profit. This also includes gains made on cryptocurrency sales.
How does capital gains tax work?
Unlike income tax, CGT is not automatically deducted by HMRC, so you must report it.
If you don’t provide accurate reports, you may pay a fine that's bigger than your tax bill, should you fail to notify HMRC.
How much is capital gains tax?
CGT rates differ from income tax rates and are in two broad brackets: basic-rate payers and higher and additional-rate payers.
| CGT rates (from April 2026) | Basic-rate taxpayers | Higher-rate and additional-rate taxpayers |
|---|---|---|
| Gains on selling shares | 18% | 24% |
| Gains on selling property | 18% | 24% |
| Carried interest | 32% | 32% |
What is the capital gains tax allowance?
When doing your tax return, you’ll be pleased to know that you have a CGT allowance.
It’s currently £3,000 for individuals (£1,500 for trusts), meaning you can make £3,000 of profit on your assets before the applicable rates kick in.
If you jointly own a taxable asset such as a second home, the allowance doubles to £6,000. For those who are married or in a civil partnership, assets can be exchanged between you. However, if you gift assets to an unmarried partner, you may trigger a CGT bill.
If you transfer assets to a spouse and make a gain from this at a later date, the CGT you pay will be based on the original purchase date, rather than the date of transfer.
You usually don't pay CGT when you sell your main home but will pay it when you sell a second property or main home if you've let it out, used it for business, or it's very large (the grounds are over 5,000 square metres in total).
The CGT rate would either be 18% or 24%, depending on your tax bracket.
How much capital gains tax on stock and shares depends again on your tax bracket, but any gains will be taxed at either 18% or 24%.
How to pay tax on cryptocurrency in the UK
Crypto investors need to report gains on cryptocurrency on their annual tax return or they can use HMRC’s real-time CGT reporting service to pay tax.
Accurate record-keeping is really important for anyone who is self-employed, but crypto investors also need to keep accurate records for tax purposes.
HMRC says crypto investors must declare the following:
The type of tokens
The date you disposed of them
Number of tokens you’ve disposed of
Number of tokens you have left
Value of the tokens in pound sterling
Bank statements and wallet addresses
Records of the pooled costs before and after you disposed of them
Getting the right financial advice for your circumstances is key. Unbiased can match you with a financial adviser who can help ensure you pay the correct amount of tax.
How do you calculate capital gains tax?
While you can work out if you need to pay capital gains tax using these easy steps, if you have a large number of taxable assets, this may take some time.
Alternatively, you can use the capital gains tax calculator on the gov.uk website.
This page also lists some of the deductions, reliefs and special circumstances to consider, which we also cover below.
Making the most of your annual allowance can make a huge difference to the amount of Capital Gains tax you end up paying.
Filling out tax forms wrong can result in headaches, interest and fines.
An accountant will be able to analyse your income and outgoings, as well as flag any tax relief when helping you with your tax return.
How do you pay tax on capital gains?
If you’re wondering how to pay capital gains tax, you need to complete a self-assessment tax return to report CGT.
Otherwise, you can use the UK government’s CGT service to pay what you owe immediately.
Find out the deadlines for paying capital gains tax in the next section.
When do you pay capital gains tax?
Anytime you sell a taxable asset and receive more for it than you paid, CGT will apply (although there are a few exceptions).
Here are the rules about when and how to pay.
Tax-return deadline
If you’re including CGT within your annual tax return, the online deadline is 31 January, while the deadline for paper tax returns is 31 October.
Real-time CGT service deadline
If you’re using the HMRC’s real-time CGT service to report your gains, this should be submitted by 31 December in the year after your gains have been made. You must pay any tax by 31st January.
Quicker time-scale for property
There is a quicker time-scale for declaring gains on residential property than other gains. CGT on second homes (or non-primary residential property) must be declared and paid within 60 days of the sale.
As the owner of a rental property, you stand to profit in two ways: from the rental income paid by tenants and from capital growth if the property increases in value.
Although you don’t normally pay tax on the sale of your main residence, the rules around rental property sales are different.
Second homes are subject to Capital Gains tax once you make a sale, and you will need to report a sale and pay any tax within 60 days of completion.
Learn more: capital gains tax on buy-to-let properties
How do you avoid capital gains tax in the UK?
The short answer is that if you owe CGT, then you can’t and shouldn’t avoid paying it.
Not declaring or paying what you owe is an offence that could land you with a fine, possibly leaving you to pay more than you originally owed.
However, there are a number of reliefs and conditions which, if you receive the right financial advice, may mean the amount of CGT you pay is lower.
Making use of your annual allowance can save you thousands of pounds in Capital Gains tax. It’s particularly useful for assets you can sell gradually, like shares or other investments.
How to reduce your capital gains tax bill
Here are a few things to consider when it comes to reducing your capital gains tax bill.
It’s important to obtain expert guidance to help you understand your tax relief opportunities and make sure you pay what you owe.
Transfer assets to your spouse
This means that you can both take advantage of your full pre-tax allowance of £3,000. (Be careful if you’re gifting assets to an unmarried partner, as there may be CGT to pay).
Keep a record of losses
Make sure any losses are declared to HMRC as these will offset your gains to give a revised contribution amount.
Use your £3,000 CGT allowance
CGT allowances can’t be rolled over into the following tax year, so it really is a case of using it or losing it.
Consider “bed and ISA”
Bed and ISA is where you sell shares held outside an ISA and immediately rebuy them inside an ISA.
This strategy protects future gains from CGT. Many investors use their CGT allowance each year while gradually boosting their ISA holdings.
Check if you qualify for principle private residence (PPR)
PPR allows you to sell a residential property that is or was your main home without paying CGT, provided certain conditions are met.
Consider investing your money
Consider investing your money in an enterprise investment scheme (EIS) or individual savings account (ISA). These both provide a tax-free home for your savings.
Give to charity
If you give shares, land or property to charity then, income and CGT relief is available.
Contribute to a pension
Contributing to your pension may alter your CGT bracket, meaning you pay less.
Be organised
Knowing what your taxable assets are (and aren’t), what your allowance is and how and when to pay CGT can all affect how much you end up contributing.
Consider your tax rate
Where both spouses or civil partners have used their annual CGT allowance, ensure assets are sold by the individual who pays the lowest marginal rate of tax.
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“Taking care of your tax affairs can be overwhelming, and if you get it wrong or file your self-assessment tax return late, you may have to pay a penalty.
A qualified accountant can help ensure you avoid making errors on your tax return and don’t pay too much (or too little) tax while informing you of any allowances or reliefs you can claim.
An accountant can also be useful if you run your own business and want support in achieving your future goals.”
Seek expert financial advice
Managing CGT can seem daunting, but with the right knowledge and strategies, you can effectively reduce your tax bill.
By understanding how CGT works, using your allowances, and seeking expert advice, you can ensure you’re paying the right amount.
Stay informed, keep accurate records, and take advantage of reliefs and exemptions to minimise your CGT liability.
Unbiased has 27,000 financial professionals who can help. Let us match you to a suitable financial adviser or tax accountant.
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