Capital Gains Tax (CGT) is a tax on any profit made after selling or disposing of certain assets. Understanding capital gains tax and your Capital Gains Tax allowance is crucial for all taxpayers as it affects the net gains from various investments.

This guide will run you through the basics of Capital Gains Tax and will include the 2024 rates, exemptions, and how to calculate your tax liability. Let’s get started.

What is Capital Gains Tax?

Capital Gains Tax is the tax you pay on the profit you make when you sell an asset that has gone up in value. It's only the profit that is taxed, not the total amount you get from the sale.

It can apply to things like property, shares, valuable items worth over £6,000 and business assets – with some exceptions that we’ll get into later.

Capital Gains Tax rates for 2024

Asset type Basic rate taxpayer Higher rate taxpayer
Shares and securities 10% 20%
Residential property 18% 28%
Other chargeable assets 10% 20%

Current Capital Gains Tax allowance

Capital Gains Tax allowance, or annual exempt amount, is the amount you can make in gains without paying any Capital Gains Tax.

For the tax year 2024/25, this allowance is £3,000. So, you don't have to pay Capital Gains Tax on gains up to this amount – which used to be higher. In 2023/24 it was £6,000.

What is the 30-day Capital Gains Tax Rule?

Before the Capital Gains Tax 30-day rule came in, investors could sell their assets off before the end of one tax year, then buy them back at the beginning of the next. By doing this, they could make the most of their annual CGT exemption. Essentially, selling and re-buying the same shares like this would reset their base value.

In 1998, the Capital Gains 30-day rule was established to stop this from happening. Under this rule, at least 30 days have to go by after you dispose of an asset before you can repurchase it. Otherwise, the ‘share matching’ rule kicks in, meaning that the investment is considered to still have its original value rather than its new asking price for CGT calculations.

What is the 36-month rule for Capital Gains Tax?

The Capital Gains Tax 36-month rule was a system that meant property owners were exempt from CGT on their property for the last 36 months of ownership. This rule took effect as long as the property had been the owner’s main residence at some point. After April 2020, however, the rules were changed to reduce the 36-month Capital Gains Tax exemption down to just 9 months.

What is the 9-month rule for Capital Gains Tax?

Similar to the old 36-month Capital Gains Tax rule, the 9-month CGT rule means that your property is exempt from CGT for the last 9 months of your ownership. This is true even if the property wasn’t your main residence during those 9 months.

Who pays Capital Gains Tax?

If you sell an asset that's gone up in value, you might have to pay Capital Gains Tax. This applies to individuals, trustees or personal representatives of an estate. However, companies don't pay this tax — they pay Corporation Tax on any gains instead.

The types of assets subject to capital gains tax include:

  • Property (excluding primary residence)
  • Shares and securities
  • Business assets
  • Personal possessions worth over £6,000 (excluding cars)
  • Cryptocurrencies

Calculating your Capital Gains Tax

1) Work out the gain

Subtract what you paid for the asset - including any purchase costs, improvements and selling costs - from the sale price.

2) Apply the allowance

Knock off the Capital Gains Tax allowance - £3,000 for 2024/25 - from your total gain.

If you are selling a business, or some of its assets, make sure you claim your Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) which allows you to pay a reduced Capital Gains Tax rate and maximise your profits when you sell up

3) Find your rate

This rate depends on your total taxable income. Gains within the basic income tax band are taxed at the basic rate, while gains that push you into the higher rate band are taxed at the higher rate.

Example calculation

Let’s say you sell some shares and make a profit of £20,000. If your other taxable income is £30,000, here's how you calculate your Capital Gains Tax.

  • Total gain: £20,000
  • Subtract CGT allowance: £20,000 - £3,000 = £17,000
  • This is the amount you need to pay tax on
  • Your taxable income: £30,000
  • This falls within the basic rate band
  • CGT rate for basic rate band: 10%
  • Capital Gains Tax = £17,000 x 10% = £1,700

You can also check our capital gains tax calculator for additional information. 

Reporting and paying Capital Gains Tax

If your gains are above the capital gains tax allowance, you need to inform HMRC. You can do this by registering for Self Assessment and filling out a Self Assessment tax return.

Remember, the deadline for submitting your return online is 31 January after the tax year ends. You also need to pay any Capital Gains Tax you owe by this date. So, make sure you make a note of it in your calendar to avoid any potential penalties.

Get in touch with us for help

Understanding Capital Gains Tax and Capital Gains Tax allowance is important for managing your investments and financial planning. By keeping an eye on your gains, using your allowances, and staying on top of reporting requirements, you can handle your tax responsibilities smoothly.

If you have any questions or need help with your Capital Gains Tax, don’t hesitate to contact us.

Capital Gains Tax - FAQs

What happens if I exceed my CGT allowance?

If your gains exceed the allowance, you must report and pay Capital Gains Tax on the excess amount. Failure to do so can result in penalties and interest on unpaid tax.

Can I carry forward unused CGT allowance?

Capital Gains Tax allowance cannot be carried forward. It resets each tax year, so any unused allowance will be lost.