Capital Gains Tax Rates and Allowances
Capital Gains Tax is charged on profits when you sell or dispose of assets that have increased in value, including investment properties, shares, business assets, and valuable possessions. Understanding CGT rates, allowances, and planning strategies is essential for anyone selling investments or second properties to minimize tax liability legally. The annual CGT allowance has been dramatically reduced to £3,000 for this tax year, down from £12,300 two years ago, meaning many more people now face Capital Gains Tax bills when selling profitable investments. Let's explore how CGT works in 2025.
CGT is separate from Income Tax and only applies when you sell assets - you don't pay tax on unrealized gains. Different assets face different rates, with residential property taxed more heavily than shares. Your main home is exempt entirely, making Principal Private Residence Relief one of the most valuable tax benefits in the UK.
How Much is Capital Gains Tax?
Annual Allowance: £3,000 per person. Gains below this are tax-free. Married couples get £6,000 combined.
Basic Rate (Shares/Assets): 10% on gains. £15,000 gain = £1,200 tax (10% on £12,000 after allowance).
Higher Rate (Shares/Assets): 20% on gains. Same £15,000 gain = £2,400 tax.
Basic Rate (Property): 18%. £50,000 property gain = £8,460 tax.
Higher Rate (Property): 24%. £50,000 gain = £11,280 tax.
Main Home: 0% - completely exempt!
Factors Affecting Capital Gains Tax
🏠 Asset Type
Property faces 18%/24% vs shares at 10%/20%. Main residence completely exempt. Business assets may get 10% relief on £1 million lifetime gains.
💰 Income Level
Higher earners pay double CGT rates. Basic rate: 10%/18%. Higher rate: 20%/24%. Capital gains added to income determine tax band.
👥 Spousal Transfers
Transfer assets to lower-rate spouse tax-free. Saves 10% on assets, 6% on property. £100,000 property gain saves £6,000 through transfer.
📅 Timing
Each tax year has new £3,000 allowance. Split sales across years to maximize allowances and minimize tax.
Minimizing Capital Gains Tax
💎 Use ISA Allowance
ISA gains completely tax-free. Invest £20,000/year in ISA vs taxable account. Over 20 years at 7% growth, saves £50,000-80,000 in CGT.
🔄 Bed and ISA
Sell shares (using £3,000 allowance), rebuy in ISA same day. Future growth then tax-free. Saves thousands in future CGT.
📊 Harvest Losses
Sell losers to offset winners. £10,000 gain + £4,000 loss = £6,000 net, saving £800-1,200 vs selling winner only.
🎯 Time Sales Strategically
Sell half before 5 April, half after 6 April. Uses two years' allowances (£6,000), potentially paying zero CGT.
CGT Exemptions and Reliefs
Main Home: Completely exempt under Principal Private Residence Relief.
Cars: All cars exempt as wasting assets.
ISAs and Pensions: All growth tax-free.
Gilts and Premium Bonds: Government bonds exempt.
Chattels under £6,000: Personal items under £6,000 exempt.
FAQs
When do I pay Capital Gains Tax?
Property: within 60 days of completion. Other assets: by 31 January Self Assessment deadline. Late payment incurs interest (~7-8%) and penalties from £100 upward.
Do I pay CGT if I sell at a loss?
No, you only pay CGT on gains (profits). Losses can offset gains in same year or carry forward to offset future gains. Claim all losses to reduce future CGT bills.
What is the CGT allowance?
£3,000 per person per tax year. Gains below this are tax-free. Unused allowance doesn't carry forward - use it or lose it annually.
How do I report Capital Gains?
Through Self Assessment tax return by 31 January. Property within 60 days. Need to register for Self Assessment if not already filing. Online submission free, paper forms must arrive earlier (31 October).
Is there CGT on inherited assets?
No CGT on inheritance itself (though Inheritance Tax may apply to estate). CGT applies when you later sell inherited asset. Your "purchase price" for CGT is asset's probate value, not what deceased originally paid.
Conclusion
Capital Gains Tax costs 10-24% on gains above £3,000, affecting investors and property owners. Strategic planning through ISAs, spousal transfers, and timing dramatically reduces bills. £20,000 gain could cost £4,000 tax or £0 with planning. Professional advice worthwhile for gains over £10,000. 📉
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Alan Frost |
| Grew up in and live in Birmingham. Writer, publisher, editor, EFL teacher, composer. |
