Capital Gains Tax is the tax on the profit (‘gain’) you make when you dispose of an asset. ‘Disposal’ can include selling, gifting, swapping, or even receiving compensation for a lost asset.
Important Note: CGT usually applies to individuals (sole traders, partners) but not incorporated businesses like limited companies. If you’re operating as a limited company, you’ll pay Corporation Tax on any gains.
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▪ Capital Gains Tax (CGT): A tax on the profit you make when selling or disposing of an asset.
▪ Who Pays CGT? Sole traders and partnerships pay CGT, but limited companies pay Corporation Tax on asset disposal.
▪ Exemptions: Your main home, personal car, gifts to spouse or charity, ISAs, and Premium Bonds.
▪ Business Assets: Current Assets: Short-term, like stock, taxed as part of business trading. Fixed Assets: Long-term, subject to CGT.
▪ Calculating CGT: The gain is the selling price minus the original cost and eligible expenses.
▪ Annual Allowance: £3,000 for individuals in 2024/25. Only gains above this allowance are taxable.
▪ CGT Rates for 2024/25: Basic Rate Taxpayer: 10% (other assets), 18% (residential property). Higher Rate Taxpayer: 20% (other assets), 24% (residential property).
▪ OMB Connect Top Tip: Utilise your allowance, claim reliefs, and deduct costs to reduce your CGT bill. n.b. Stay Sharp, Stay Savvy, and Keep Winning!
Skip right to…
- How Much Capital Gains Tax Will I Pay in the UK?
- 1- When Does Capital Gains Tax Apply?
- 2- Exemptions from Capital Gains Tax
- 3- Capital Gains Tax for Businesses
- 3- Types of Assets in a Business
- 4- Working Out Your Gain
- 5- Tax-Free Allowance
- 6- Capital Gains Tax Reliefs for Businesses
- 7- How Much CGT Will I Pay?
- 8- Example Calculation: How Much CGT Will Patrick Pay?
- 9- Quick Tips to Minimise CGT
- Conclusion
How Much Capital Gains Tax Will I Pay in the UK?
1- When Does Capital Gains Tax Apply?
You’ll encounter CGT when selling assets like property, shares, or even cryptocurrency.
Let’s break down some common scenarios:
Selling Your House
You usually won’t pay CGT if:
1- It’s your main residence.
2- You haven’t let part of it out or used it solely for business purposes.
3- The property size is under 5,000 square metres.
Selling Your Car
Good news! You don’t pay CGT when selling your car, even if it’s a classic car, provided it hasn’t been used for business purposes.
2- Exemptions from Capital Gains Tax
Several assets are exempt from CGT, including:
▪ Your main home (if it meets certain criteria).
▪ Gifts to a registered charity or your spouse.
▪ Investments in PEPs or ISAs.
▪ Betting, lottery, or competition winnings.
However, simply giving an asset away (unless it’s to your spouse or a charity) can still trigger CGT, as HMRC will treat it as a sale at market value.
3- Capital Gains Tax for Businesses
If you’re a sole trader or in a partnership, gains made by the business are considered personal gains. Limited companies, however, pay Corporation Tax on any profits from asset sales.
Tip: Tax rules differ depending on your business activities. For example, businesses investing in art will pay tax differently compared to those occasionally selling art.
3- Types of Assets in a Business
In a business, assets fall into two categories:
▪ Current Assets: Short-term assets like stock and raw materials. Gains on these are taxed as part of regular business income.
▪ Fixed Assets: Long-term assets, including property, machinery, or intellectual property. These are subject to Capital Gains Tax.
4- Working Out Your Gain
Your gain is simply the difference between the sale price and the original cost of the asset. You can also deduct eligible expenses like advertising fees or improvements made to the asset.
Example: If you sell a painting for £40,000, but spent £20,000 on its purchase and £5,000 on auction fees, your gain is £15,000 (£40,000 – £25,000).
5- Tax-Free Allowance
In 2024/25, individuals have a tax-free allowance of £3,000, and trustees get £1,500. Only gains above this allowance are taxable.
Quick Fact: If your total gain is below the allowance, you don’t need to report it.
6- Capital Gains Tax Reliefs for Businesses
There are reliefs like Business Asset Disposal Relief (BADR) to help reduce your CGT liability on business assets. This is worth looking into if your business disposes of qualifying assets.
7- How Much CGT Will I Pay?
The CGT rate depends on your income tax band and the type of asset disposed of. Here’s a breakdown for 2024/25:
| Taxpayer Type | Residential Property | Other Assets |
|---|---|---|
| Basic Rate Taxpayer | 18% | 10% |
| Higher Rate Taxpayer | 24% | 20% |
| Trustee | 28% | 20% |
8- Example Calculation: How Much CGT Will Patrick Pay?
Patrick sells a painting for £20,000 in 2024/25. His costs include an original purchase cost of £10,000 and auction fees of £3,000.
He earns £25,000 a year from his job.
Calculation:
Total Gain: £20,000 – £13,000 (costs) = £7,000
Taxable Gain: £7,000 – £3,000 (allowance) = £4,000
Income for Tax Year: £22,000 (salary) + £4,000 (gain) = £26,000
CGT Rate: 10% (basic rate taxpayer, non-property asset) As Patrick is a basic rate taxpayer (see table above)
CGT to Pay: £7,000 × 10% = £700
9- Quick Tips to Minimise CGT
▪ Utilise Allowances: Use your Annual Exempt Amount before selling assets.
▪ Claim Reliefs: Check if you’re eligible for reliefs like Business Asset Disposal Relief.
▪ Deduct Costs: Don’t forget to deduct eligible costs like advertising fees or improvements.
Conclusion
Capital Gains Tax can seem complex, but with the right planning and understanding, you can minimise what you owe.
Remember, it’s about the gain, not the sale price, and knowing which assets and costs can be offset is key. If in doubt, consult an accountant to help navigate the rules effectively.
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