Your simple guide to Capital Gains Tax

If you have ever sold an asset for more than you originally paid for it, you may have paid Capital Gains Tax (CGT) on the profit.

For those just starting their investment journey, or even for seasoned investors, navigating the ins and outs of CGT might feel confusing.

However, having a solid grasp of CGT is essential for effective financial management and strategic investment planning.

Here, learn more about CGT, starting with the very basics. We’ll explore how it works, what rates you can expect to pay, and ways to make informed decisions when selling taxable assets.

Capital Gains Tax can affect how much you take home after the sale of an asset

Simply put, CGT is a tax levied on the profits you make when you sell, gift, or dispose of certain assets. It’s not a tax on the total amount you receive, but rather on the gain you’ve made. This is the difference between what you paid for the asset and what you sold it for.

For example, if you bought a painting for £10,000 and later sold it for £15,000, your capital gain would be £5,000.

In the 2025/26 tax year, you have a CGT Annual Exempt Amount of £3,000. This is the amount you can gain tax-free each year before CGT begins to apply.

So, if you had not disposed of any assets this tax year, and you wanted to sell your painting, only £2,000 of the gain would be subject to CGT.

Capital Gains Tax is levied on a range of assets, but there are exceptions

Generally, CGT will apply to a range of assets, including:

• Profits from selling shares that are not held within an Individual Savings Account (ISA) or pension
• Properties that are not your main residence, including buy-to-let properties, second homes, and most land
• All or parts of your business, including its assets
• Personal possessions worth over £6,000, including valuable antiques, jewellery, and artwork, though your vehicle does not qualify
• Some corporate bonds and gilt-edged securities.

It’s worth noting that there are some key exemptions to CGT. For instance, you generally won’t pay CGT on profits earned from:

• Your main residence, though there are some exemptions to this
• Assets held in ISAs and pensions – investments held within these tax-efficient wrappers are usually exempt from CGT
• Private motor cars, including vintage cars
• Prizes, UK government gilts and premium bonds
• Certain personal possessions that are worth less than £6,000.

Regarding your main residence, as long as the property has been your only or main home, and you’ve lived in it for the entire time you owned it, you usually won’t pay CGT on any profit.

However, if you’ve let out part of the property or haven’t lived in it for the entire ownership period, the situation might become a bit more complicated.

Calculating your Capital Gains Tax liability involves deducting allowable costs from the sale proceeds

You would 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:

• The original cost
• Costs incurred in improving the asset
• Incidental costs on a purchase, such as legal expenses
• Incidental costs on a sale, such as broker commissions.

Using the painting example from earlier, if you paid a sum of money to have the painting restored, and this increased its value, you could deduct the restoration cost from the capital gains.

Once you have done all of the above, and removed any Annual Exempt Amount you benefit from, you should be left with a chargeable gain.

Capital Gains Tax rates changed following the 2024 Autumn Budget

As of the 2025/26 tax year, the main rates of CGT for individuals in the UK are:

• 18% for basic-rate taxpayers
• 24% for higher- and additional-rate taxpayers.

If your Income Tax liability changes, this could affect your CGT rate.

Keep in mind that the current rates will apply to you, but in the case of trustees and personal representatives, there may be different rules and rates.

Understanding the difference between Income Tax and Capital Gains Tax can help you time your sales

Income Tax is a direct and annual tax on any income you make. This could come from your regular income from employment, self-employment, ongoing property income, or investments.

CGT is a one-off charge based on singular transactions in a year, rather than anything recurring.

So, while you may not have as much control over your Income Tax, you can time the sale of assets to minimise your CGT liability.

Ways to do this include:

• Making the most of your Annual Exempt Amount
• Spreading asset disposals over several years to maximise tax efficiency
• Using previous years’ losses to reduce your gain.

While you might have limited control over your Income Tax, seeking bespoke tax advice could help you minimise your liability and avoid any confusion.

A solid understanding of Capital Gains Tax is vital for effective financial planning

Understanding CGT is a core part of financial planning, particularly if you own assets outside of tax-efficient accounts. If you know what CGT is, which assets it applies to, how it’s calculated, and the current rates, you can better manage your investments and work towards the most profitable solutions.

Remember that tax rules can be complicated, and what we’ve discussed is only the tip of the iceberg.

If you’re interested in learning more or want to find out what disposing of an asset could look like for you, talk to us.

Email enquiries@jesellars.co.uk or call 01934 875 919 to find out more about how we can help you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.