Understanding Capital Gains Taxes UK and How to Pay

In the UK, capital gains tax is a tax on the profit made from selling an asset, such as a property or shares. There are two types of assets: chargeable and exempt.

If you sell a chargeable asset, you'll need to pay capital gains tax on the profit. The tax rate depends on your income tax band and the type of asset sold. For example, if you're a basic-rate taxpayer, you'll pay 10% on chargeable assets, while higher-rate taxpayers pay 20%.

You can claim an annual exemption, which is £12,300 for the 2022-2023 tax year. This means you won't pay capital gains tax on the first £12,300 of profit from selling chargeable assets.

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Capital Gains Tax is a tax you pay on your profits, which you declare via a tax return when selling an asset over a certain threshold. You'll then need to file and pay your Capital Gains Tax bill by 31st January each tax year.

The rate of CGT you pay depends on the type of asset you've sold and how much you earn overall.

You'll need to file a tax return to declare any gains made from selling assets such as property, jewellery, paintings, cryptocurrency, and stocks and shares.

Capital Gains Tax is a tax charge applied to the gain from the sale of something you own, typically being the increase in value of the sale price compared to the purchase price, for an asset held for more than one year.

Here are some examples of assets that are subject to Capital Gains Tax:

To calculate your capital gains, you need to determine the proceeds from the sale and subtract the original cost, incidental costs of purchase, costs incurred in improving the asset, and incidental costs of sale.

The original cost is typically the actual amount paid for the asset, but if the asset was owned at 31 March 1982, you use the market value at that date instead.

You can also deduct the cost of any improvements, such as an extension to a house, but not repairs. Incidental costs of buying and selling, like legal expenses and estate agents' fees, can also be deducted.

Here's a breakdown of the costs to deduct:

For example, if you bought a house for £10,000 and sold it for £250,000, but had £1,000 in legal expenses on purchase and £7,000 in legal and estate agent costs on sale, your chargeable gain would be £202,000.

Calculating capital gains can be a bit of a puzzle, but don't worry, I'm here to help you break it down.

To calculate your gain, you need to take the proceeds from the sale and subtract the original cost, incidental costs of purchase, costs incurred in improving the asset, and incidental costs of sale.

You normally work out your gain by taking the proceeds (or in some cases, the market value on the date of disposal) and then deducting all of the following: original cost (or in some cases, market value when acquired), incidental costs of purchase, costs incurred in improving the asset, and incidental costs of sale.

This then gives you the chargeable gain.

Here's a step-by-step guide to calculating your chargeable gain:

+ 31 March 1982 value (if you owned the asset at that date)

+ Cost of extension (if you made improvements)

+ Legal expenses on purchase

+ Legal expenses on sale

For example, let's say you sold an asset for £250,000, and you had costs of £48,000. Your chargeable gain would be £202,000 (£250,000 - £48,000).

If you received an asset as a gift, you'll usually need to consider the market value of the asset when you acquired it.

The date of disposal is a crucial factor in calculating capital gains tax, and it's not always as straightforward as you might think.

For property, the date of disposal is the date contracts are exchanged, not the date of completion when you take possession of the property.

The UK has a 60-day window for reporting capital gains tax due on disposals of UK residential property, which begins from the date of completion.

For shares, the date of disposal is the date the bargain actually took place, not the date of the contract note or the date of settlement.

If you enter a conditional contract, the date of disposal is when the conditions are satisfied, not the date the contract was agreed.

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Tax rates and exemptions play a crucial role in determining how much capital gains tax you'll need to pay. The rate of CGT you pay depends on the type of asset you've disposed of and your tax band.

Here are the tax rates for different types of assets: Type of assetBasic rateHigher rateShares10%20%Residential property18%24%Bitcoin/Cryptocurrency10%20%Other10%20%

Some assets are exempt from CGT, including private motor cars, gifts to UK registered charities, and cash. If you sell or give away personal belongings, you won't have to pay CGT if your share of the proceeds or value when given away is less than £6,000.

Rates play a significant role in determining how much tax you'll pay on your gains. The good news is that the rates are relatively straightforward.

For the 2024/25 tax year, CGT is charged at the rate of either 10% or 18% for basic rate taxpayers. There's a 20% rate for higher or additional rate taxpayers, and a 24% rate for higher or additional rate taxpayers on residential property disposals.

The rates for different types of assets are as follows:

If you're a basic-rate taxpayer but your gain pushes you into the higher-rate band, you'll pay some CGT at both rates. The special rate of 10% applies on the sale of certain business assets, which is called business asset disposal relief.

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The annual exempt amount (AEA) is a tax-free allowance that most individuals in the UK get each year. It's also known as the annual exemption.

The AEA has actually decreased in recent years, which is worth noting if you're planning your finances.

Here's a breakdown of the AEA for the past few years:

You can't carry forward or back any unused AEA, so make sure to use it within the tax year.

Each spouse or civil partner gets their own AEA, so you and your partner can both benefit from this allowance.

Not everyone is entitled to an AEA, though. If you're not domiciled in the UK and use the remittance basis of taxation, you won't be eligible.

Exempt assets can be a welcome relief from capital gains tax (CGT). Some assets are specifically exempt from CGT.

Private motor cars, including vintage cars, are exempt from CGT. This is a great exemption for car enthusiasts.

Gifts to UK registered charities are also exempt from CGT. This means that if you donate to a charity, you won't have to pay CGT on the gift.

Some government securities are exempt from CGT. This exemption applies to certain types of government bonds.

Prizes and betting winnings are exempt from CGT. This is a nice win for those who are lucky enough to receive a prize or win a bet.

Cash is also exempt from CGT. This means that if you sell an asset and receive cash, you won't have to pay CGT on the cash.

Stocks and shares held in an ISA are exempt from CGT. This is a great benefit for those who have invested in an Individual Savings Account.

Foreign currency held for your own use is exempt from CGT. This exemption applies to foreign currency that you hold for personal use, rather than for investment purposes.

Here are some common exempt assets:

You have several options available when it comes to tax rates and exemptions.

The standard deduction is a fixed amount that can be subtracted from your income, and in the US, it's $12,950 for single filers and $25,900 for married couples filing jointly.

You can also itemize deductions, which means you list each individual expense to claim a deduction. This can be a good option if you have a lot of expenses like mortgage interest, property taxes, or charitable donations.

Some states offer exemptions from state income tax, and in California, for example, you can claim an exemption of up to $4,400.

You may also be eligible for the Earned Income Tax Credit (EITC), which can provide a refund even if you don't owe taxes. The credit is available to low- to moderate-income working individuals and families, and the amount you can claim varies based on your income and family size.

If you're self-employed, you may be able to deduct business expenses on your tax return, which can help reduce your taxable income.

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You'll need to report and pay Capital Gains Tax (CGT) on any profits above £3,000 in the 2024/25 tax year.

To do this, you'll need to declare your capital gains via your Self Assessment tax return, as mentioned in the example from TaxScouts. This is usually done by 31st January the tax year after you profit.

You can register for Self Assessment to declare the income by 5th October, as shown in the example deadlines. It's essential to keep track of these deadlines to avoid any penalties.

If you're a UK resident, you may be liable to CGT on disposals of assets located anywhere in the world, not just your UK-located assets. Non-residents are also liable to CGT if they're carrying on a trade in the UK, but the rules can be complex.

Here's a summary of the deadlines to be aware of:

Remember, you only owe CGT on profits above £3,000 in the 2024/25 tax year. Anything less than that is tax-free, so it's essential to keep track of your profits to avoid any unexpected tax bills.

You're lucky if you fall into one of the special cases where capital gains tax (CGT) doesn't apply. One such instance is the sale of your main home, which is exempt from CGT.

If you're married or in a civil partnership, you can gift assets to each other without incurring CGT. This includes cars that aren't used for business purposes, as long as they're not sold or gifted to someone else.

You can also gift personal possessions to a limit of £6,000 per year without paying CGT. This is a great way to share your wealth with loved ones, but be aware of the annual limit.

Here are some other special cases where CGT doesn't apply:

Selling your main home can be a complex process, especially when it comes to tax relief. Principal Private Residence (PPR) is a tax relief that allows you to sell your main home without paying Capital Gains Tax (CGT).

The key to qualifying for PPR is that the property needs to be, or have been, your main residence. This means if you've lived in the property at some point, you're eligible for PPR relief, even if you rented it out later.

If you sell a property that wasn't your main residence, you might be liable for CGT. However, PPR can give you a 9-month period of exemption, known as the final period exemption. This means you won't have to pay CGT on the gains made during that final 9-month time frame.

In certain circumstances, 'deemed occupation' reliefs can also apply, increasing the amount of PPR you can claim.

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If you've made a loss by selling an asset, you can report it to HMRC and potentially claim tax relief, but there are some catches. You can't claim allowable losses if you've sold or given an asset to a spouse, family member, connected person, or non-chargeable asset.

Some assets are exempt from Capital Gains Tax altogether. These include the sale of your main home, gifts between married and civil partners, and certain types of investments like ISAs and Peps.

You can reduce your CGT liability by claiming the Capital Gains Tax allowance, which is £3,000 per tax year. This means you won't have to file a tax return if your gains are less than this amount.

Businesses can also benefit from tax relief. For example, if you sell a trading asset and replace it with a new one using the proceeds, you can defer the capital gain against the cost of the new asset.

If you sell your business or a percentage of it, you may be eligible for Business Asset Disposal Relief, which reduces the CGT rate to 10% on the first £1m of gains. However, this rate is set to increase to 14% in 2025 and 18% in 2026.

Here are some circumstances where you don't normally have to pay CGT:

You inherit an asset from someone, but you won't pay CGT right away. However, if you sell, give away, or exchange the inherited asset and it's increased in value since the deceased's death, you might have to pay CGT on the gain.

CGT applies to gifts you receive from people other than your spouse or civil partner. Hold over relief means the person who gifted you the asset doesn't pay tax on the effective sale of that asset.

When you're gifted an asset, you need to conduct a valuation to determine its value at that time. This valuation is crucial for calculating any gain when you sell the asset in the future.

Any gain you make when selling the gifted asset will be calculated from the price on the date it was gifted to you. This means you won't pay CGT on the gain from the time the asset was originally acquired.

In the UK, the annual Capital Gains Tax (CGT) allowance is £3,000 from the 2024/25 tax year. This means that you can make gains of up to £3,000 without paying any CGT.

The tax rates for CGT depend on whether you're a basic-rate, higher/additional-rate tax payer. The table below shows the CGT rates for the 2024/25 tax year.

Welsh and Scottish taxpayers must consider their total income and gains in relation to the UK rates and bands to work out their CGT, even if they pay income tax at different rates and bands.

The 2020 changes to the capital gains tax are a must-know for anyone selling a residential property in the UK. If you sell a property, you now need to declare your profits within 30 days and pay any tax you owe.

You'll need to use the Real Time Capital Gains Tax Service to do this. This 30-day rule has been in place since 6th April 2020, so make sure you're aware of it.

Don't forget that this rule applies to both UK residents and those who own UK property but live abroad. If you don't comply, you could face a fine from HMRC.

There are some exceptions to these changes, which are worth noting. Here are the main ones:

In the UK, Scottish and Welsh taxpayers have the same rules to follow when it comes to Capital Gains Tax (CGT).

You must consider your total income and gains in relation to the UK rates and bands to work out your CGT, even if you pay income tax at the Scottish or Welsh rates and bands on your salary, self-employed profits, rental income, or pension.

If you live in Scotland or Wales and are a Scottish or Welsh taxpayer, your CGT liability is no different than if you were paying tax in any other part of the UK.

For example, Benny, a Scottish taxpayer, pays Scottish income tax on his taxable income, but his CGT liability is the same as if he were paying tax in England.

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The annual exempt amount for 2024/25 is £3,000, which can be set against your gains.

Here's a quick rundown of the tax bands and rates for Scottish and Welsh taxpayers:

Keep in mind that the annual allowance and tax band rates are subject to change, so it's essential to stay up-to-date on the latest information.

If you own an asset jointly with someone, you'll each be liable to tax on your half of any gain arising, assuming the asset is owned equally.

The tax assessment is based on your share of the asset, which can be a complex calculation if the ownership isn't split equally.

You'll need to consider the percentage of ownership when determining your share of the gain, and this can impact the amount of tax you'll pay.

As an investor, it's essential to understand how your investments are taxed. Investors' Relief provides CGT relief to individual investors on the disposal of investments in ordinary shares, reducing the tax rate on gains to 10% for higher rate taxpayers.

To qualify for Investors' Relief, disposals must have been made after 6 April 2019, and the investments must have been held for 3 years and made on, or after, 17 March 2016. The relief is also subject to a lifetime cap of £1m, reduced from £10m as of 30 October 2024.

If you've invested in cryptocurrencies, you'll be taxed on the related gains, just like CGT applies to the gains generated from selling shares. This means you'll be taxed on the difference between the cost and selling price of your cryptocurrency, minus the annual CGT allowance.

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Investors can benefit from tax relief on their investments in ordinary shares, but there's a catch - they need to have held the shares for at least 3 years.

The Investors' Relief (IR) provides a 10% tax rate for higher rate taxpayers, but only on disposals made after 6 April 2019.

The lifetime cap for this relief is £1m, which was reduced from £10m as of 30 October 2024. This limit is crucial to keep in mind when planning your investments.

The relief is only applicable if the shares were subscribed for in cash and the business being invested in is a trading company or holding company of a trading group, and it's unlisted.

Cryptocurrencies are taxed in the UK, just like other investments, and the gains are subject to capital gains tax (CGT).

You'll be taxed on the gains from crypto assets, in the same way as CGT is applied to the gains generated from selling shares.

The annual CGT allowance is applied, and your gains are calculated based on the difference between how much your cryptocurrency cost you versus how much you sold it for.

You'll need to take account of the 30-day rule, also known as 'bed and breakfasting', which prevents people from using their CGT allowance each year by selling shares and then buying them back the next day.

Purchasing assets using cryptocurrency can trigger a CGT liability, for example, if you buy an asset for £100,000 using Bitcoin, and your Bitcoin cost you £90,000, there's a CGT charge on the £10,000.

Cryptocurrencies also form part of your estate as an asset, meaning they're potentially subject to inheritance tax should you pass them down to beneficiaries in the event of your death.