When you sell something that’s increased in value, you may have to pay tax on the gain – this is known as capital gains tax (CGT).
You pay capital gains tax on different types of ‘assets’ when you dispose of them.
‘Disposing’ often refers to selling the asset, but it can include gifting, swapping, or getting compensation for it too.
Read on to find out:
What is capital gains tax and the capital gains tax allowance?
If you own an asset that’s increased in value, you’ve made a ‘gain’. And when you dispose of the asset, HMRC sees the gain as taxable.
Bear in mind it’s the gain that’s taxed, not the total you get for the asset.
For example, if you buy an antique for £6,000 and then sell it later for £20,000, you pay capital gains tax on the £14,000 gain.
The capital gains tax allowance, also known as the capital gains tax threshold, is the amount you can make in gains before having to pay tax.
The capital gains allowance has been gradually reduced in recent years, dropping from £12,300 to £6,000 in April 2023 and then to £3,000 in April 2024.
When do you pay capital gains tax?
Capital gains tax applies when you dispose of different types of assets, including:
- personal possessions worth £6,000 or more (for example, paintings and jewellery, but not your car)
- property that’s not your main home
- your main home, only if you’ve been renting it out or using it for business
- shares outside of individual savings accounts (ISAs) and personal equity plans (PEPs)
- business assets (including land, plant and machinery, and shares)
There are different capital gains tax rates and allowances to keep in mind, which affect the overall amount you end up paying.
What is the capital gains tax allowance for 2024-25?
The current capital gains tax allowance for the 2024-25 tax year is £3,000. This means that when you sell or dispose of an asset, you pay tax on the gain over £3,000.
For example, you bought a painting for £10,000 and sold it five years later for £15,000. Your total gain would be £5,000. Minus the £3,000 tax-free allowance means your taxable gain would be £2,000.
The CGT allowance for trusts in 2024-25 is £1,500.
What are the capital gains tax rates?
Capital gains tax rates differ depending on the income tax band you fall into (basic, higher, or additional rate). There are also different rates when you’re selling property – read our comprehensive guide to capital gains tax on property for more information.
In the Autumn Budget 2024, the Chancellor raised the tax rate at which CGT is charged. The current CGT rates are below.
| Tax band | Tax rate on chargeable assets* |
| Basic rate taxpayer | 18% |
| Higher or additional rate taxpayer | 24% |
*excluding property
These rates also apply to trustees or representatives of someone who’s died.
Even if you’re a basic rate taxpayer, the CGT rate you pay depends on the size of your gain, because it could push you into higher rates.
There’s another rate for sole traders or partnerships whose gains qualify for business asset disposal relief (formerly known as entrepreneurs’ relief). This is a 10 per cent capital gains tax rate on selling all or part of a business.
Who is required to pay capital gains tax in the UK?
Any UK taxpayer could have to pay CGT if they sell something for a profit. Whether you have to pay Any UK taxpayer could have to pay CGT if they sell something for a profit. Whether you have to pay capital gains tax and how much you need to pay depends on:
- what you’re selling (some private possessions are exempt from CGT)
- your tax band (basic rate, higher rate, or additional rate)
Some of the most common things people need to pay CGT on include second homes, selling a business, or valuable possessions. As a result, business owners often have to pay CGT when they sell something.
Capital gains tax isn’t to be confused with income tax. If you’re selling items for a profit as a business, through a platform like Vinted or Etsy, you’ll need to pay income tax if you earn more than £1,000 a year. Read our guide to side hustle tax for more information.
How to report and pay capital gains tax
If you reported your capital gain as part of your Self Assessment tax return, you’ll need to pay at the same time.
But if you reported your gain using HMRC’s ‘real time’ capital gains tax service, you can pay HMRC online.
You can choose to pay with a credit or debit card, or you can approve a payment directly from your bank account. There’s an extra charge if you pay with a corporate credit or debit card.
If you’d prefer to pay your capital gains tax by bank transfer or cheque, payment details can be found on the government website.
How to calculate capital gains tax
It’s important to know when to pay capital gains tax and how much you need to pay. Here are some relevant scenarios for how capital gains tax applies to businesses.
How to calculate capital gains tax on business assets
Sole traders and business partnerships pay capital gains tax when they sell all – or part of – a business asset.
Limited companies pay corporation tax on profits, including income from selling assets, so capital gains tax doesn’t apply.
The government website gives examples of business assets that capital gains tax applies to:
- land and buildings
- fixtures and fittings
- plant and machinery (a digger, for instance)
- shares
- trademarks
- goodwill, including your business’s reputation (HMRC sees this as quantifiable when you sell the business)
To work out your taxable gain:
Calculate the profit: what’s the difference between how much you paid for the asset and how much you sold it for? You can use the asset’s market value in some situations, for example if it was a gift, or you sold it for less than it’s worth to help the buyer.
Subtract costs: these include fees for advertising the asset and money spent on improving the asset. There are some costs you can’t deduct, like interest on a loan, or costs you can claim as business expenses.
Deduct tax reliefs: tax reliefs can reduce the amount of capital gains tax you need to pay. These include business asset disposal relief, incorporation relief, business asset rollover relief, and gift hold-over relief (see more below).
Capital gains tax calculator
You can use a capital gains tax calculator, such as this one from TaxScouts, to work out how much tax you need to pay on any assets you sell.
There’s also plenty of useful CGT information on the government website.
Please use this article as a guide only. Make sure you get tax advice from a professional if you’re unsure of anything when it comes to capital gains tax.
What are the tax reliefs for capital gains tax?
| Tax relief | What is it? | Who can use it? |
| Business asset disposal relief (formerly Entrepreneurs’ relief) | Reduced 10% rate on qualifying profits | Sole traders, business partners, or those with shares in a ‘personal company’ |
| Incorporation relief | Delay paying CGT when transferring your business to a company | Those transferring a business in return for shares (you pay CGT when you sell shares) |
| Business asset rollover relief | Delay paying CGT when disposing of assets you’ll replace | Those who buy the new asset within three years of disposing of the last one |
| Gift hold-over relief | Pay no CGT if giving an asset to someone – they pay CGT when disposing | You need to have used the asset when trading |
What is the capital gains tax-free allowance?
You only have to pay capital gains tax on your total gains above the annual tax-free allowance of £3,000.
Exemptions for capital gains tax include:
- selling a property that’s not your primary residence
- gifts to your spouse, civil partner, or a charity
- individual savings accounts (ISAs) and personal equity plans (PEPs)
- UK government gilts and Premium Bonds
- lottery or betting winnings
When you inherit an asset, you don’t usually have to pay capital gains tax. This is because inheritance tax is paid by the estate of the person who’s died. If you later sell an asset you inherited, you may need to pay CGT.
What happens if you don’t declare capital gains tax? Fines and penalties explained
There are a range of penalties for missing your CGT filing deadline or late payment:
| Reason | Penalty |
| Late payment of CGT | 5% of the tax due |
| Missing the filing deadline | £100 |
| Missing the filing deadline by 3 months | £90 daily penalty (with a maximum fine of £900) |
| Missing the filing deadline by 6 months | £300 penalty or 5% of the tax due (whichever is greater) |
| Missing the filing deadline by 12 months and deliberately concealing information | £300 penalty or 100% of the tax due (whichever is greater) |
| Missing the filing deadline by 12 months but not deliberately concealing information | £300 penalty or 70% of the tax due (whichever is greater) |
Capital gains tax and allowance – FAQs
Here are some frequently asked questions about capital gains tax and the capital gains allowance.
If you have any unanswered tax questions, find out more on our business tax guide.
Do you pay capital gains tax on shares?
If you buy or own shares that you sell after making a profit, it’s likely you’ll need to pay capital gains tax.
Generally, you’ll pay CGT when selling:
- shares
- units in a unit trust
- bonds
However, it’s important to note you won’t pay CGT on:
- shares that are part of an individual savings account (ISA) or personal equity plan (PEP)
- UK government gilts, such as Premium Bonds
- shares in employer Share Incentive Plans (SIPs)
- qualifying corporate bonds
- employee shareholder shares
If you want to avoid paying CGT when selling shares, you can invest them into a tax-free product like a pension or ISA.
Can I use my capital gains allowance for investments?
If you want to sell investments, you can use your tax-free investment allowance UK to reduce your capital gains tax bill.
What is the capital gains allowance for 2025-26?
The annual capital gains tax allowance for 2025-26 is set to remain at £3,000.
However, tax allowances could be subject to change as part of the Autumn Budget 2025.
What does Labour have planned for capital gains tax?
As part of the Autumn Budget 2024, the Labour government announced that it would be increasing the rates of capital gains tax.
From 6 April 2025, the lower rate of capital gains tax will rise from 10 per cent to 18 per cent, and the higher rate from 20 per cent to 24 per cent. The existing rates for selling property will remain the same.
Do you pay capital gains tax in Scotland?
Capital gains tax is collected in all parts of the UK. The rates and allowances for paying capital gains tax in Scotland align with the rest of the UK.
Useful tax guides for business owners
- What is Making Tax Digital – is your business ready?
- When is the Self Assessment deadline?
- HMRC penalties for self assessment – a guide for the self-employed
- Personal tax account – how to set one up for your business
Looking to protect your business?
Understanding capital gains tax is a key for business owners and so is having the right insurance cover. We’re one of the UK’s biggest business insurance providers, so why not take a look now and build a quick, tailored quote?