What Triggers Capital Gains Tax and When Do You Have to Pay It?

Introduction

Capital Gains Tax (CGT) is the UK tax on profits made when you sell or dispose of certain assets. It is not a tax on the asset itself, nor on the money you receive — it is a tax on the increase in value from the time you acquired the asset to the time you parted with it. Bought shares for £20,000 and sold them for £50,000? That is a £30,000 gain, and CGT is calculated on the gain, not the £50,000.

CGT has moved from a relatively minor tax to a political battleground over the past five years. The annual exemption has been slashed from £12,300 in 2022/23 to just £3,000 in 2024/25 and 2025/26. The headline rates on most assets were increased on 30 October 2024 from 10%/20% to 18%/24%. Business Asset Disposal Relief, used by thousands of owner-managed businesses, is ratcheting up from a 10% rate to 14% in 2025/26 and 18% from April 2026. The CGT net is catching more people each year, and many disposals that would have fallen within the old allowances now generate real bills.

This guide sets out how UK Capital Gains Tax works today, the rates and allowances, the specific rules for property, shares, crypto and business assets, the major reliefs you can claim, the reporting deadlines, and the mistakes HMRC sees most often. All figures are for the 2025/26 tax year unless stated. Where I can’t verify a 2026/27 figure, I flag it and direct you to GOV.UK.

What Is a Chargeable Disposal?

CGT applies when you make a “chargeable disposal” of a “chargeable asset.” Disposal is broader than selling. It includes:

• Selling an asset for cash.
• Swapping it for another asset.
• Giving it away (gifts to anyone other than a spouse or registered charity are disposals at market value).
• Receiving compensation for its loss or destruction.
• Transferring it to a trust.

Some disposals are not chargeable — most notably transfers between spouses and civil partners, which happen on a no-gain-no-loss basis, carrying the acquiring spouse into the shoes of the transferring spouse for base cost.

Chargeable and Exempt Assets

Most assets are chargeable. Key exempt or outside-CGT assets include:

• Your main home (subject to Private Residence Relief — see below).
• Private cars.
• Personal possessions (“chattels”) sold for £6,000 or less.
• ISAs and pensions (tax-free entirely).
• UK government bonds (gilts) and most corporate bonds (called “Qualifying Corporate Bonds”).
• Lottery, pools and betting winnings.
• Premium Bonds and NS&I Savings Certificates.
• Foreign currency for personal use.

Cryptocurrency, NFTs, forest plantations, artwork above the £6,000 chattels exemption, second homes, buy-to-let property, shares outside an ISA or SIPP, and business assets are all chargeable.

UK CGT Rates (2025/26)

From 30 October 2024, the headline CGT rates increased. For 2025/26, the rates are:

Rates are applied after deducting the annual exempt amount. Note that CGT is charged on gains that “sit on top” of your income for banding purposes — if your income fills your basic-rate band, all your gains will be at the higher rate regardless of asset type.

The Annual Exempt Amount (AEA)

For 2025/26, the AEA is £3,000. For trusts, it is £1,500 (half the individual rate). The AEA used to be around four times as generous — £12,300 just three years ago — but a series of cuts has brought it to £3,000 and the government has not committed to raising it.

Rates Trajectory

Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) rates are rising on a phased timetable. The historical 10% rate applied to disposals up to 29 October 2024. From 30 October 2024 to 5 April 2025, the rate stayed at 10%. From 6 April 2025, the rate rose to 14%, and from 6 April 2026 it rises again to 18% — the same as the basic-rate CGT rate. The £1m lifetime limit for both reliefs was unchanged for BADR but was slashed for IR from £10m to £1m in Budget 2024.

How to Calculate a Capital Gain

The basic formula is:

Capital Gain = Disposal proceeds − Allowable costs

Allowable costs include:

• The price you paid for the asset (the base cost).
• Acquisition costs (stamp duty on purchase, legal fees, survey fees).
• Enhancement expenditure that adds permanent value (a new kitchen extension; not repainting the walls).
• Incidental costs of disposal (estate agent’s fees, legal fees on sale, broker commission).

A Simple Share Example

Hannah bought 1,000 shares in Unilever for £42,000 in 2020, paying £210 of stamp duty and £10 broker commission. In 2025 she sold them for £58,000, paying £20 broker commission.

• Allowable cost: £42,000 + £210 + £10 = £42,220.
• Net proceeds: £58,000 − £20 = £57,980.
• Gain: £57,980 − £42,220 = £15,760.
• Less AEA: £15,760 − £3,000 = £12,760 taxable.
• As a higher-rate taxpayer: £12,760 × 24% = £3,062.40 CGT.

Share Pooling and the “Same Day” Rule

When you have bought the same class of shares in the same company over time, UK CGT rules pool them into a single Section 104 holding with a weighted average cost. This stops you picking and choosing which tranche you sold. Two specific rules override the pool:

• Same-day rule: shares bought and sold on the same day are matched first.
• 30-day “bed and breakfasting” rule: shares sold and then repurchased within 30 days are matched against each other. This was introduced to stop investors artificially crystallising losses by selling and re-buying immediately.

A common side-effect of the 30-day rule is accidental disallowance. If you panic-sell shares in a falling market to crystallise a loss, then re-buy within 30 days when the price rebounds, you have not created a tax loss — the disposal is matched against the re-purchase, and no loss arises.

Foreign Shares and Currency

Gains on shares denominated in foreign currency are calculated in sterling, using exchange rates on the acquisition and disposal dates. A movement in the exchange rate can therefore create or wipe out a gain entirely. HMRC publishes monthly average rates that are acceptable where you do not have precise spot rates.

Residential Property and CGT

Property is the most frequent CGT area for ordinary taxpayers. The rules have changed often, and the reporting timetable is much tighter than for other assets.

Your Main Home: Private Residence Relief

If a property is your only or main residence throughout the time you owned it, the gain is fully covered by Private Residence Relief (PRR), and there is no CGT. The relief is proportionate: if a property was your main home for eight years out of ten, and you let it out for two, around 8/10 of the gain is covered, plus the final nine months are automatically covered (previously 18 months; reduced to nine from April 2020).

Common PRR traps:

• Nominating the wrong property: if you own two properties, you must elect which is your main home within two years of acquiring the second, or HMRC decides based on the facts.
• Long absences: periods when you did not live there may reduce the relief. Some absences are deemed occupation under specific rules (e.g. work abroad, working elsewhere in the UK for up to four years).
• Grounds larger than 0.5 hectares: PRR is restricted to reasonable grounds for enjoyment. Large estates can face CGT on the surplus garden.
• Business use: rooms used exclusively for business lose PRR pro rata. A room that is both home office and occasional guest room is usually fine.

Letting Relief

Since April 2020, Letting Relief is only available where the owner and tenant shared occupation during the let — a dramatic narrowing of the rule. For buy-to-let landlords who never lived in the property, Letting Relief is not available.

Second Homes and Buy-to-Let

Gains on second homes and buy-to-let are fully taxable. The 2025/26 rate is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. Given how limited the basic-rate band is once a gain is added on top of income, most property gains end up mostly at 24%.

The 60-Day Reporting Rule

Since 27 October 2021, UK residential property disposals must be reported to HMRC and any CGT paid within 60 days of completion, using the UK Property Disposal online service. This is independent of your annual Self-Assessment return. You then also declare the disposal on your Self-Assessment, and any over-paid or under-paid amount is reconciled. Missing the 60-day deadline triggers an automatic £100 penalty, rising quickly.

Shares, Funds and Crypto

Shares Held Inside an ISA or SIPP

Entirely exempt from CGT. The most powerful CGT planning step for most individual investors is to move taxable holdings inside ISAs and SIPPs over time. Because transfers from a general account to an ISA require a sale and repurchase (“bed-and-ISA”), you can plan the sale to use the AEA each year and limit the tax drag.

Unwrapped Share Portfolios

Share pooling, same-day, and 30-day rules apply. Keep trade contracts, dividend vouchers (for acquisition of new shares), and DRIP records. For reporting funds (OEICs, unit trusts, ETFs with UK Reporting Status), capital gains and excess reportable income are both relevant each year.

Cryptocurrency

HMRC treats crypto like shares for CGT purposes. A disposal is any sale for fiat, swap of one crypto for another, gift, or use to buy goods. Crypto held in a UK taxable wallet does not benefit from any ISA-style shelter. Pooling rules apply: identical tokens (e.g. Bitcoin) are pooled at an average cost, with same-day and 30-day rules identical to shares.

A major practical issue is record-keeping. Exchanges often provide imperfect data, and swaps can generate hundreds of small disposals. Several specialist tools (Koinly, CryptoTaxCalculator, Recap) now connect to HMRC-recognised reporting formats. Keep everything — HMRC increasingly receives data directly from exchanges.

EIS, SEIS and VCT Shares

These can either be exempt or benefit from reduced rates:

• EIS shares held for at least three years: exempt from CGT on disposal. Also give 30% income tax relief on investment.
• SEIS shares held for at least three years: exempt from CGT on disposal. 50% income tax relief on investment, plus reinvestment relief for other gains rolled into SEIS.
• VCT dividends are tax-free, and gains on disposal are tax-free provided conditions are met.

These reliefs are designed to encourage investment in small, early-stage UK companies and carry substantial investment risk. Tax relief alone is rarely sufficient reason to invest.

Business Assets and Reliefs

Business Asset Disposal Relief (BADR)

Formerly called Entrepreneurs’ Relief, BADR reduces the CGT rate on qualifying business disposals to 14% for 2025/26 (rising to 18% from April 2026). The lifetime cap is £1 million of qualifying gains.

To qualify, generally:

• You must have owned the business or shares for at least two years.
• For shares, you must hold at least 5% of ordinary share capital, voting rights, dividend entitlement and assets on winding-up.
• For shares, you must be an officer or employee throughout the two-year period.
• For unincorporated businesses, you must be a sole trader or partner throughout.

BADR is most commonly claimed on: the sale of an owner-managed company’s shares, the sale of a sole trader’s business, and the winding-up of a company (provided the TAAR — see Article 2 — doesn’t apply).

Investors’ Relief

IR gives the same 14% (rising to 18%) rate on disposals of ordinary shares in unlisted trading companies held for at least three years, with a lifetime cap of £1 million (cut from £10 million in Budget 2024). It is aimed at passive external investors — not directors or employees.

Holdover Relief

A gift of a business asset or of shares in a personal trading company can qualify for Holdover Relief, which defers the gain by reducing the recipient’s base cost instead of charging the donor now. Form HS295 and joint election required.

Rollover Relief

Where you sell a business asset used in your trade and reinvest the proceeds in a new qualifying asset within three years, Rollover Relief defers the gain by reducing the base cost of the new asset.

Incorporation Relief

Where a sole trader transfers their business, including all assets, to a new limited company in exchange for shares, the gain is rolled into the shares — no immediate CGT. Available automatically if conditions are met.

Losses

Capital losses can be offset against gains in the same tax year, reducing the taxable amount before the AEA. Unused losses are carried forward indefinitely and offset against future gains. Losses must be reported to HMRC within four years of the end of the tax year in which they arose to be usable.

A loss can be “crystallised” for planning purposes — selling a losing asset deliberately to generate a usable loss. The 30-day rule stops you simply buying back the same asset. Two common workarounds:

• Bed-and-ISA — sell outside, rebuy inside the ISA. The 30-day rule is considered not to bite because the ISA is a separate legal holding, although HMRC guidance should be checked for each asset type.
• Bed-and-spouse — sell the asset and have your spouse buy it in their own name. Combined family position is unchanged, but the loss is crystallised.

Negligible value claims can be made for assets that have become worthless, allowing a loss to be claimed without disposal.

Case Studies

Case Study 1: The Landlord Downsizing

James owns a buy-to-let flat in Glasgow bought for £140,000 in 2010. In 2025 he sells it for £220,000. Allowable costs are £6,000 (stamp duty, legal, agent). Gain = £220,000 − £140,000 − £6,000 = £74,000. Less AEA £3,000 = £71,000. As a higher-rate taxpayer: £71,000 × 24% = £17,040. Due within 60 days of completion.

Case Study 2: The Crypto Trader

Kelly traded Bitcoin, Ethereum and various altcoins actively in 2023 and 2024. Across hundreds of swaps, her total gains net of losses are £18,500 in 2025/26. Less AEA £3,000 = £15,500 taxable. As a basic-rate taxpayer with £4,000 of headroom left in the basic band: £4,000 at 18% = £720, plus £11,500 at 24% = £2,760. Total CGT = £3,480. She must file Self-Assessment and the Crypto schedule.

Case Study 3: The Owner Selling Their Business

Daniel sells his digital agency for £1.8 million after 12 years. He qualifies for BADR on the first £1 million of gain. Assuming a £1.5 million gain after allowable costs: first £1 million at 14% = £140,000; remaining £500,000 at 24% = £120,000. Total = £260,000. Less AEA £3,000 at 24% = −£720. Final CGT = £259,280. Reported on Self-Assessment for the 2025/26 year; not subject to 60-day reporting as it is not residential property.

Common Mistakes

1. Forgetting to report a property disposal within 60 days.
2. Not using the AEA each year. It doesn’t roll over — use it or lose it.
3. Not recording acquisition costs. Decades later, proof of base cost matters for large gains.
4. Ignoring the 30-day rule when bed-and-breakfasting to create losses.
5. Failing to elect the main home within two years when acquiring a second property.
6. Assuming BADR applies automatically. You need at least two years of ownership, share ownership and employment status.
7. Missing the loss-claim window. Losses must be reported within four years.
8. Confusing income tax losses with capital losses. They cannot be offset against each other except in very specific circumstances.
9. Overlooking crypto disposals as chargeable events. Swapping Bitcoin for Ethereum is a disposal of Bitcoin at market value.
10. Assuming a gift means no tax. Gifts to non-spouses are disposals at market value.
11. Transferring assets to a spouse and forgetting to actually change legal ownership. Spousal no-gain-no-loss requires a real transfer.

Future Outlook

The direction of CGT is clearly towards closer alignment with income tax rates. The Office of Tax Simplification (now disbanded) recommended a full alignment in 2020, and while successive governments have not gone that far, each step has moved the rates and reduced the allowances closer. Whether the current gap between CGT (up to 24%) and income tax (up to 45%) will persist into the late 2020s is far from certain.

The AEA at £3,000 means many ordinary disposals now trigger a bill. Property disposals in particular, with the 60-day reporting window and 24% rate, are producing larger and more immediate tax bills than historically. Taxpayers selling a second home or inherited property often underestimate how quickly the cash needs to be found.

The rising BADR rate — 10% to 14% to 18% — is already generating behavioural effects, with business owners accelerating sales before rate hikes. This is natural but should not override commercial logic; selling too early or at a suboptimal valuation can cost more than the tax rate difference.

Making Tax Digital and the Common Reporting Standard mean HMRC increasingly receives disposal data automatically. Undeclared gains have a much higher chance of surfacing than a decade ago. The reputational and financial cost of failure-to-notify penalties (up to 100% of tax lost for deliberate evasion) usually far exceeds the tax itself.

Conclusion

Capital Gains Tax has moved from a fringe concern for wealthy investors to a mainstream tax that catches ordinary homeowners, small-scale landlords, crypto traders and business owners. The reduced AEA, higher main rates, and faster property reporting all mean that CGT now needs proactive management during the tax year rather than backward reflection at Self-Assessment time. For most taxpayers, the combination of ISA wrapping, pension contributions, annual AEA use, inter-spousal transfers, and careful timing of disposals will remain the highest-value planning toolkit. For business owners, BADR still offers meaningful relief at the 14% rate — but the window before the rate rises to 18% in April 2026 is narrow, and rushed transactions rarely produce optimal outcomes.

Frequently Asked Questions

Quick-Reference Table

Trusts and CGT

Trusts have their own CGT regime and are taxed differently from individuals. A trust has a reduced annual exempt amount — £1,500 for most trusts in 2025/26 (half of the individual AEA) — and gains are taxed at the higher rates of 18%/24%. Bare trusts are treated as look-through for tax purposes, so gains are attributed to the beneficiary rather than the trustees.

Settling an asset onto a trust is a disposal at market value, triggering CGT on the settlor unless hold-over relief applies. Distributions of assets to beneficiaries can also be disposals, though hold-over relief can often defer the gain. Trusts are a common part of inheritance and estate planning but have been significantly squeezed by CGT and IHT reforms — many historical tax advantages have disappeared. Anyone setting up or running a trust should take specialist advice every year, not just at inception.

Non-Residents and UK CGT

Historically, non-UK residents were largely outside the scope of UK CGT on UK assets, with residential property being the main exception from 2015. Since 2019, the net has widened. Non-residents now pay UK CGT on:

• UK residential property (since 2015).
• UK commercial property (since April 2019).
• Shares in “property-rich” companies (25% or more of their value from UK land).
• Gains realised during short periods of non-residence (temporary non-residence rule).

A UK residential property owned by a non-resident must be reported within 60 days using the UK Property Disposal service, and the tax paid at the same time. Non-residents can also use the AEA against UK-taxable gains if they make a claim.

The Temporary Non-Residence Rule

If you leave the UK and come back within five years, gains realised on assets held before you left are brought into UK tax in the year you return. The rule targets “short holiday” departures used to crystallise gains tax-free, and catches returning expatriates who are unaware of it.

Deferred Consideration and Earn-Outs

Sales of private companies are often structured with some of the consideration paid after completion — an earn-out based on future performance, or a loan note paid over time. UK CGT rules distinguish between:

• Ascertainable deferred consideration (a fixed amount payable later) — treated as received on sale.
• Unascertainable deferred consideration (a formula linked to future performance) — the sale creates an immediate gain on the up-front cash plus the value of the right to receive future amounts (a “Marren v Ingles” right). When each instalment is received later, there is a second CGT event.

This structure can result in capital losses on the final instalments if the earn-out pays less than the initial value of the right. Sellers sometimes elect to use the full-value-on-sale approach to keep things simple, but the arithmetic needs specialist advice.

Hold-Over Relief Worked Example

Ravi wants to transfer shares in his private trading company to his daughter Priya. The shares have a market value of £400,000; his base cost is £50,000. If he simply gifts them, the deemed disposal at £400,000 gives a gain of £350,000, tax at 24% = £84,000.

If they jointly elect hold-over relief using form HS295, no gain is triggered on Ravi. Priya inherits Ravi’s base cost of £50,000. When she eventually disposes of the shares for, say, £600,000, the gain is £550,000, taxed on her at her own rates. The relief simply defers the tax to the next disposal. Hold-over can stack with BADR on Priya’s eventual disposal if conditions are met.

Incorporation Relief Worked Example

Sarah has run a photography business as a sole trader for six years. Her goodwill is worth £120,000, and she has various assets worth £30,000. She incorporates, transferring all assets to a new company in exchange for shares worth £150,000.

Incorporation Relief applies automatically, rolling the £120,000 implicit gain into the shares. Her base cost in the shares is £30,000 (£150,000 − £120,000). If she later sells the shares for £400,000, her gain is £370,000. With BADR and the £1m lifetime limit, at the 2025/26 rate of 14% the bill is £51,800, plus any non-BADR gain over £1m at 24%.

Partnerships and CGT

Partners are taxed as if they own a fractional share of every partnership asset. A change in partnership shares, admission of a new partner, or retirement of an existing partner can trigger CGT events. Limited liability partnerships (LLPs) are treated the same way. Partnership disposal documentation should always record asset shares clearly so that CGT calculations are possible years later.

Share Schemes

EMI Options

Enterprise Management Incentive options are tax-advantaged options for employees of small companies. Exercising an EMI option does not create income tax if granted at market value, and the gain on eventual share sale is taxed as CGT. From 6 April 2023, the two-year BADR holding period can be satisfied from the date of grant rather than exercise, making EMI very tax-efficient.

RSUs and Standard Options

Restricted Stock Units and non-tax-advantaged options are taxed differently. RSUs are income-taxed on vesting at market value, with CGT applying to later growth. Most UK tech workers with RSUs sell at vest to meet the tax withholding, meaning CGT is rarely in play. Holding beyond vest makes the subsequent sale a CGT event with a base cost equal to the vest-date market value.

Save As You Earn (SAYE) and Share Incentive Plans (SIP)

SAYE and SIP shares sold into an ISA within 90 days do not count against the ISA allowance, and moving them into an ISA shelters them from future CGT. Direct rollover into a SIPP is also possible and extremely tax-efficient.

Chattels, Wasting Assets, and Collectibles

The £6,000 Chattels Exemption

Personal possessions sold for £6,000 or less are exempt from CGT. Between £6,000 and £15,000 there is marginal relief. Above £15,000 the full gain is taxed.

Wasting Assets

Assets with a predictable life of 50 years or less are wasting assets and their gains are computed with reference to a depreciating base cost. Personal cars are wasting and exempt. Clocks and mechanical watches are deemed wasting. Works of art and antiques are not.

Specific Collectibles

• Gold coins that are UK legal tender (e.g. Britannia, Sovereigns) — CGT-exempt as currency.
• Gold bullion — fully taxable.
• Fine wine — generally wasting and exempt, though HMRC has challenged high-value long-life collections.
• Classic cars — exempt as private cars.
• Stamps, coins and collectibles — taxable but chattel rules may help for smaller items.

Tracking Base Cost

Good CGT calculations rely on good records. Keep, per asset:

• Contract notes and broker statements for purchases.
• Evidence of stamp duty paid.
• Records of dividend reinvestments with share prices.
• Share splits, consolidations, and rights issues.
• Records of gift and inheritance values.

For property, keep purchase completion documents, enhancement expenditure invoices, and evidence of any partial disposals. Scans stored in cloud storage with redundant backup are the minimum; spreadsheets tracking pool costs for shares are extremely valuable when a sale eventually happens.

Planning Ahead of Rate Changes

The BADR rate rising to 18% from April 2026 has prompted many owner-managers to bring forward sales. Before accelerating, consider:

• Valuation: a rushed sale often realises 10–20% below a planned one. A 4% tax rate difference rarely outweighs a 10% valuation hit.
• Earn-outs: the tax rate applied to deferred consideration is the rate at the time of each CGT event, not the sale date. Shifting to all-cash may be more tax-efficient if rates are rising.
• Partial disposals: selling a minority stake now to secure the current rate, with the balance later, is sometimes possible.
• Company reorganisations: spinning out a specific business line may crystallise a partial gain now and reserve capacity for later.

Decisions of this magnitude need specific professional advice.

CGT and the Self-Assessment Return

Individual CGT is reported on the SA108 Capital Gains supplementary pages of the Self-Assessment return. You must report if total chargeable gains exceed the AEA or if total disposal proceeds exceed £50,000 (the £50,000 disposal-proceeds threshold replaced the old “four times AEA” test from 2023/24). Even if no tax is due, reporting ensures losses are recorded for carry-forward. Figures should be recorded per asset or asset class, with acquisition and disposal dates, proceeds, costs, and gain/loss. HMRC accepts consolidated summaries for large share portfolios where back-up calculations are retained. For property disposals already reported on the 60-day service, you still declare them on the annual return and reconcile any over- or under-paid tax.

Final practical tip: do not attempt to finalise your CGT position in January when returns are due. By then, the tax year is long over, and any planning opportunities (crystallising losses, using the AEA, moving assets into ISAs) have passed. The sensible rhythm is a tax-year-end review each February and March, confirming the position and executing any last planning steps before 5 April.