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When you sell an asset, like a rental property or a painting, you may need to pay capital gains tax (or CGT) on the profit you make.
Capital gains tax is one of the more complicated taxes in the UK, although relatively few people pay it each year. Once you’ve read this guide you’ll know whether you need to worry about CGT and what it entails if you do.
Who pays capital gains tax?
Capital gains tax becomes due when you dispose of an asset that has increased in value.
Selling something counts as disposing of it. So does giving it away, swapping it, or getting another form of compensation for it. The main exception is if you give something to your partner or to a charity – in which case you don’t have to pay capital gains tax.
Capital gains tax isn’t paid as a portion of the asset’s sale price but as a portion of the profit you’ve made. In other words, you’re not being taxed on the sale but on your gains (hence the name).
In this case, an asset could be anything from a second home to a valuable stamp collection.
Personal possessions worth £6,000 or more usually qualify for capital gains tax, although not your car and usually not your main home. So paintings, jewellery or antiques could all be subject to the tax if they were valuable enough and if you sold them for a profit.
More commonly, any other property you own – like a second home or buy to let – could be subject to CGT if sold for a profit, as could any business assets or shares that you hold outside of a tax-free wrapper like an ISA or pension.
You don’t need to pay capital gains tax on money you’ve made through betting or a lottery win, or from government gilts.
Do I pay capital gains tax when selling my house?
You usually don’t pay CGT when selling your main home because of Private Residence Relief, but not all properties qualify for that tax break.
You may still need to pay if your main home has been solely used for business for a period of time, if you’ve rented it out or if the building grounds are over an acre in total.
If that’s the case, then it may be a good idea to seek the help of a tax professional.
How much is capital gains tax?
Each year you have a CGT allowance, which is the amount of profit you can earn by selling assets without having to pay any capital gains tax.
As of April 2025, you can make £3,000 from the sale of assets without paying CGT. This tax-free allowance is also known as the Annual Exempt Amount.
Imagine you’ve disposed of a valuable asset – an antique, say, or a buy-to-let property – for more than you paid for it. After you’ve subtracted the Annual Exempt Amount and any other tax reliefs, losses or allowances from your profit, you’ll pay capital gains tax on any profit that’s left over.
During the 2024 Autumn budget, a raft of changes to rates of capital gains tax were announced. Because these changes came halfway through a tax year, the current capital gains tax situation is a little complicated, with different tax rates depending on when exactly the gain was made.
Capital gains tax rates for basic-rate taxpayers (those earning £12,571 to £50,270) are now set at the following levels:
- 18% on gains made from 30 October 2024 onwards
- 10% on gains made from 6 April 2024 to 29 October 2024
For those in the higher- or additional-rate tax brackets (those earning over £50,270), capital gains tax rates are now set at the following levels:
- 24% on most gains made from 30 October 2024 onwards
- 24% on gains made from disposing of residential property between 6 April 2024 and 29 October 2024
- 20% on gains made from disposing of most other chargeable assets between 6 April 2024 and 29 October
If you’re a basic-rate taxpayer but you make enough of a gain selling an asset that it nudges you over into the higher rate, then you will only pay the higher rate on the amount you’re over the line by.
All this can be a bit of a minefield, which is why the Government has created a CGT calculator for the sale of property and a CGT calculator for when you sell shares.
The Government has also published guidance for working out the gain on personal possessions.
If you’re worried about working out your total capital gains tax liability, then you could seek professional advice or call the HMRC helpline on 0300 200 3300.
You will need your Self-Assessment Unique Taxpayer Reference to use that helpline. If you don’t have one, then register for self-assessment first.
When do you pay capital gains tax?
You can report and pay any CGT due after a sale or trade by using the government’s ‘real time’ Capital Gains Tax service. Note that you have until 31 December in the tax year after you made the gain to report any CGT-eligible transactions. You’ll have until 31 January to pay.
You can also report gains using a self assessment tax return in the tax year after the sale or disposal of your asset(s). Once you’ve filed your tax return, HMRC will let you know how much you owe and when you need to pay.
How to avoid capital gains tax
The bad news is that death and taxes are life’s two certainties, and there’s no way of getting out of either.
As with all forms of taxes, it’s really important that you’re truthful with HMRC when you tell them about your capital gains. It’s also vital that you file your returns and make your payments on time – or you could find yourself facing additional penalties.
The good news, however, is that there are perfectly legal ways to reduce your capital gains tax bill.
For example, you can lower your capital gains liability by making use of your tax-free allowances.
Any of your annual £3,000 CGT allowance that isn’t used in one year cannot be rolled over into the next, so if you plan to sell a series of assets, then spreading those sales over multiple tax years can make a significant difference to the amount of CGT you’ll end up paying.
Another way to reduce your capital gains tax bill is to work with your spouse or partner. Married couples and civil partners can effectively combine their CGT allowances by transferring assets before disposal – giving the partnership a total allowance of £6,000 a year. However, any assets transferred in this way must be outright gifts.
As an example of how this might work, imagine you have two valuable assets to sell. You could sell one yourself, allowing you to offset your £3,000 tax-free CGT allowance against the profit, and you could give the other asset as a gift to your partner. When they sell it, they’ll also be able to offset their £3,000 allowance against the profit from the deal.
You can also offset any losses against your gains to effectively reduce the amount of profit eligible for capital gains tax. This works because you only need to pay capital gains tax on your overall profits in any given tax year, rather than on every individual sale where you make a profit.
As an example, if you make £10,000 profit on the sale of one asset but lose £5,000 selling another asset in the same year, you’ll only have to pay tax on £5,000 worth of gains (£3,000 of which can be offset by your tax-free allowance).
You have up to four years from the end of the tax year where you made the loss to register it with HMRC.
You should also know that there are slightly different rules for when you sell an asset to a ‘connected person’ like a family member or business partner. You can’t sell assets to connected people at a loss and then offset that same loss against gains elsewhere.
By the way, if this is starting to sound a little complicated, that’s because it is. Speak to a tax professional if you think this situation may apply to you or if you have any other questions about your tax situation.
Other than working with your partner and offsetting losses against your gains, you have one more secret weapon in the battle to reduce your CGT bill… and that’s using your £20,000 annual ISA allowance to reduce capital gains tax on shares.
Your ISA allowance can be used for cash savings, stocks and shares, or innovative finance products – or a mix of all three. Gains made on stocks and shares held in an ISA wrapper can’t be touched by HMRC, saving you from a CGT bill whenever you offload shares for a profit.
If in doubt about your taxes (or even just to double-check), it’s always best to seek advice from an accountant or tax adviser so you can be sure you’re acting within the rules.
» MORE: How tax relief works
Do you pay capital gains tax on an inheritance?
Most of us don’t regularly make the kind of sales that put you in capital gains tax territory. But you may find you need to pay CGT if you inherit and then sell an asset.
When someone dies, their estate may need to pay inheritance tax depending on its value. Currently, no inheritance tax is paid on estates worth less than £325,000, but that figure can be higher depending on a few different factors. For example, in cases where a married couple pools their allowances and bequeaths their home to a direct descendant, the effective inheritance tax threshold rises to £1,000,000.
However, inheritance tax and capital gains tax aren’t the same thing, and you won’t need to pay CGT until you sell or dispose of any inherited property or assets. At that point, you would pay CGT based on any increase in value from the date when you inherited the asset (not from when the asset was purchased by the deceased in the first instance).
» MORE: Everything you need to know about inheritance tax
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