Capital Gains Tax: A comprehensive guide

If you have ever sold something valuable, such as a property, shares, or even a business, you may have come across Capital Gains Tax (CGT).

It is one of the most common areas of tax people feel unsure about, because the rules are not always obvious until you need them.

In this guide, we explain everything you need to know about Capital Gains Tax. We’ll cover what it is, when it applies, how it is calculated, and what you can do to manage it properly.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the profit you make when you sell or dispose of an asset that has increased in value.

The key word here is gain. You are not taxed on the total amount you receive, only on the increase in value.

For example, if you bought shares for £5,000 and later sold them for £8,000, your gain would be £3,000. It is this £3,000 that may be subject to Capital Gains Tax.

What assets are subject to CGT?

CGT can apply to a wide range of assets. Some of the most common include:

• Property that is not your main home
• Shares and investments
• Business assets
• Valuable personal possessions worth more than £6,000 (such as artwork or jewellery)

Your main home is usually exempt, thanks to what is known as Private Residence Relief. However, there are exceptions, particularly if the property has been rented out or used for business purposes.

When do you pay Capital Gains Tax?

You may need to pay Capital Gains Tax when you:

• Sell an asset
• Gift an asset to someone (other than your spouse or civil partner)
• Exchange an asset
• Receive compensation for an asset (for example, an insurance payout)

Even if no money changes hands, a gain can still arise because HMRC often treats gifts or transfers as if the asset was sold at its market value. In other words, the gain is based on what the asset is worth at the time, not what you received, which is something that often catches people off guard.

How much do you pay in Capital Gains Tax?

The rate of Capital Gains Tax depends on two main factors: your income tax band and the type of asset you are selling.

For the 2026/27 tax year:

• Basic rate taxpayers typically pay 18% on gains from most assets
• Higher and additional rate taxpayers typically pay 24%

The exact rate will depend on your overall taxable income, which is why timing and planning can make a real difference.

What is the Capital Gains Tax allowance?

Each individual has an annual Capital Gains Tax allowance which is the amount of profit you can make before any tax is due.

For the 2026/27 tax year, the allowance is £3,000, or £1,500 for trusts.

If your total gains for the year fall below this threshold, you will not pay CGT. If your gains exceed it, you will only be taxed on the amount above the allowance.

This allowance cannot be carried forward, so if it is not used in a given tax year, it is lost.

How do you calculate Capital Gains Tax?

Working out your Capital Gains Tax starts with calculating your gain.

This is usually:

Sale price, minus purchase cost, minus allowable costs

Allowable costs can include legal fees, stamp duty, and improvement costs. These reduce your gain and, in turn, the amount of tax you pay.

Once your gain has been calculated, you deduct your annual allowance and apply the relevant tax rate.

While the process is straightforward in principle, the detail matters, as small adjustments can have a noticeable impact on the final figure.

Are there ways to reduce Capital Gains Tax?

There are legitimate ways to reduce your Capital Gains Tax liability, depending on your circumstances.

Using your annual allowance each year is one of the simplest approaches. Spouses and civil partners can also transfer assets between them, allowing you to make use of two allowances instead of one.

In some cases, specific reliefs may apply. For example, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) can reduce the tax rate when selling a qualifying business. The relief is subject to a £1 million lifetime limit, with qualifying gains taxed at 18% for disposals made on or after 6 April 2026. Any gains in excess of this limit are taxed at the standard CGT rates.

Planning ahead is key. Once a sale has taken place, opportunities to reduce tax are often more limited.

Do you need to report Capital Gains Tax?

In most cases, you will need to report your gains to HMRC.

This is typically done through a Self Assessment tax return. However, if you sell UK residential property and have tax to pay, you may need to report and pay within 60 days of completion.

Missing deadlines can lead to penalties, so it is important to understand your reporting obligations early on.

Capital Gains Tax on property

Property is one of the most common areas where CGT applies.

If you sell a second home or a buy-to-let property, any gain is likely to be taxable. The calculation can also be more complex, particularly if the property has been your main residence at any point.

Reliefs may still be available, but they depend on how the property has been used over time.

Why CGT catches people out

CGT often becomes relevant at key moments, such as selling a property, restructuring investments, or exiting a business.

Because it is not something most people deal with regularly, it can come as a surprise as the rules do require careful handling to get right.

A small misunderstanding can lead to overpaying tax or, in some cases, unexpected liabilities.

Getting the right support

Capital Gains Tax is about understanding your income, your assets, and your plans.

At GLX, we support clients with clear, practical advice tailored to their situation. Whether you are planning a sale or have already made one, getting the right guidance early can make a meaningful difference to the outcome.

If you are unsure how CGT applies to you, or you want to plan ahead with confidence, contact our team. We are always happy to talk things through.