Capital gains tax: what it is, how it works and what to avoid
Confused about capital gains tax? In this guide, we'll explain what it is, how much your CGT allowance is and how to reduce your tax bill.
Capital gains tax may be payable on your gains when you sell or dispose of an asset that has increased in value.
CGT is not automatically deducted by HMRC, you are responsible for reporting your gains and paying any tax that is due.
CGT may be payable on assets including stocks and shares, buy-to-let property, business assets, as well as some of your valuable possessions.
There are a number of ways to reduce your CGT bill - an adviser can guide you through the options
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, so you must report it to HMRC.
If you don’t provide accurate reports or notify HMRC, you may pay a fine that's bigger than your tax bill.
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% |
What is the capital gains tax allowance?
Everyone has an annual allowance for capital gains - this is referred to as your annual exempt amount.
It’s currently £3,000 for individuals (£1,500 for trusts), meaning you can enjoy £3,000 of gains tax-free each year when you sell.
If you jointly own a taxable asset such as a second home, the allowance doubles to £6,000.
If you are married or in a civil partnership, you can also transfer assets between you, tax free.
However, if you gift assets to an unmarried partner, it 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).
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?
To pay CGT you can declare your gains in your annual tax return.
Or, 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?
To avoid any penalties, it’s important to know the deadlines for paying CGT.
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.
The exception: there’s a quicker time-scale for property
If you sell residential property you’ll need to act faster.
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 tax-free allowance of £3,000.
Even if you have both used your allowance, there may still be a benefit of transferring assets to a spouse if they will pay the lower rate of CGT than you.
Just note it’s only transfers between spouses and civil partners that are tax-free. If you aren’t married to your partner, it could trigger a tax bill.
Keep a record of losses
Make sure you also declare any losses to HMRC. That’s because you can use them to offset your gains and reduce the amount of CGT you need to pay.
Use your £3,000 CGT allowance
If you have investments like stocks and shares that can be sold in stages, it may be worth selling gains up to the tax-free allowance each year.
That way, you get to use your tax-free allowance every year. And you don’t have to exit the market either - you can also use it as an opportunity to rebalance your investment portfolio or you can buy an equivalent holding.
(The 30 day rule prevents you buying the same share back immediately for tax purposes).
Consider “bed and ISA”
Investments in ISAs are sheltered from tax.
Bed and ISA is where you sell shares held outside an ISA (in a trading or general investment account) 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.
The 30 day rule doesn’t apply with a bed and ISA.
Also bear in mind that you may trigger a CGT bill if the amount you transfer exceeds the annual allowance for tax-free gains.
Make the most of tax wrappers
In addition to using your £20,000 ISA allowance to protect your wealth from tax, you can also pay money into pensions. Money invested in pensions benefits from upfront tax relief and there is no tax to pay on gains either (just note pension income is taxable).
The standard allowance for pensions is 100% of your income up to £60,000 a year.
Wealthy investors may also want to consider enterprise investment schemes (EIS) or venture capital trusts (VCTs). However, while they do offer generous tax breaks, they are higher risk.
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.
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 paying.
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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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