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Understanding Capital Gains Tax

Capital gains is an important tax to understand because it’s up to you to declare it, and pay it, and avoid the penalties. Our post will help you understand exactly what you need to do.

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All you need to know about capital gains tax

Capital gains tax, often abbreviated to CGT, is one of those taxes that is only paid under specific conditions. It’s also not applied automatically, so it’s up to you to know when it needs to be paid and to arrange for payment. This makes keeping yourself up-to-date about Capital Gains Tax all the more important. Reading this article will make sure you’re fully informed on everything you need to know.

Simply, what is CGT Capital Gains Tax

CGT is applied to nearly everything you sell at a profit. The tax is applied to the profit you make, not the sale price. So, if you bought some jewellery 50 years ago for £5000 and now it’s worth £10,000, you only pay CGT on £5000 (the gain you made) rather than £10,000 (what you sold it for).

The notable exemptions for Capital Gains Tax are:

  • Personal items worth under £6000
  • Your primary residence (with some exceptions)
  • Individual Savings Accounts (ISAs)
  • UK  government gilts and Premium Bonds
  • Betting, lottery or pool winnings
  • Personal vehicles, including trucks and vans
  • Foreign currency held for your own use


The three types of CGT are:

  • Property: Applied to most property other than your primary residence.
  • Shares and cryptocurrencies: When you make a gain on the sales on shares or digital assets. Make sure all your investment planning includes CGT as part of the strategy where necessary.
  • Goods and “chattels”: Personal possessions, over the value of £6000


Across all types of CGT, you have an annual exemption of £3,000 for the 2024/25 tax year. Remember that’s on the amount you gain, not on the actual sale price.

Types of capital gains tax

When it comes to property, your primary residence does not normally attract CGT, you can sell your home without needing to factor in CGT. However, second homes and any land you sell is a different matter. Capital gains tax for individuals is charged at 18% for lower-rate taxpayers and 28% for higher-rate taxpayers.

Capital gains on shares and crypto assets are charged at 10% for basic-rate taxpayers, and 20% for higher-rate taxpayers.

You’ll need to pay CGT on any personal items you sell for a profit at the rate of 10% and 20% for lower and higher-rate taxpayers, respectively.

How to work out capital gains tax

The usual way to work out CGT is using the following formula:

Total sum of sale (or market value if it was gifted) minus original cost or original market value minus incidental costs of purchase, minus costs incurred in improving the asset, then lastly minus incidental costs of sale.

An example would be :

If you paid £100,000 for a buy to let property, your second property, and then sold it a few years later for £150,000.

  • Total sum of proceeds of sale = £150,000
  • Minus £100,000 original cost = £50,000
  • Minus purchasing conveyancing fees of £1000 = £49,000
  • Minus £10,000 home improvements = £39,000
  • Minus £1000 selling conveyancing fees = £38,000

Therefore, your CGT on this sale is £38,000.

While capital gains for the whole year, including any losses you made, can be reported in your self-assessment, you only have 60 days to do so, along with paying any tax due.

How to write off losses with CGT

Within any one tax year you can also write off any losses you made on the sale of homes, land, possessions or shares on that, and future years, capital gains. You can’t reduce your capital gains in previous years on losses made in future years, however. So, if you make a loss this year, you can deduct it from the next (and future) years’ gains, but not last year’s gains. Remember to also factor in your personal allowance of £12,300. If the item in question is jointly owned by your married or civil partner, you can then join the two allowances together to make £24,600 in total allowance.

Married and civil partners can freely give any asset between them on a no gain, no loss basis, meaning there is no Capital Gains Tax to pay. Using this combination with a married allowance can make your Capital Gains Tax planning much more efficient, especially if you’re both in differing income tax bands. Remember that if you’re not married or in a civil partnership, there is no automatic right to inherit. Likewise you won’t be able to take advantage of the ‘no gain, no loss’ exemption. This makes your CGT planning all the more important. Think also about how you plan to retire and your will in general.

Important to note: Inflation isn’t considered when calculating the value of items purchased in the past. An item purchased for £1000 in 1970 still has that value when calculating CGT, rather than an inflation-adjusted figure of around £16,000 in 2021.

If you want to start thinking about planning for the 2022/2023 tax year, we’ve got all the data you need in one place in our tax year update. 

When it comes to Capital Gains Tax it impacts on all your finances

Given all the factors in play regarding Capital Gains Tax, it’s important to have a strategy. Taking a holistic view of your income, assets, savings and investments is going to offer you many more options than looking at a single sale in isolation. This means that talking to a financial adviser is often a helpful step before disposing of any assets.

Author & Editor: Cherie-Anne Baxter

Date: 13/01/2022

Tax treatment varies according to individual circumstance and is subject to change.

Are you thinking of making a sale and want to check Capital Gains Tax? Get in touch for a chat.

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