Like other taxes you might be subject to as an individual, Capital Gains Tax (CGT) can pose a risk to the value and growth potential of your investments. Effective tax planning can reduce your potential exposure to Capital Gains Tax.

Here, we provide a brief explanation of how it works, when you might need to pay it, and some of ways you can help reduce your overall CGT liability.

However, it’s important to remember that the rules relating to tax are complex, subject to your individual circumstances, and can change at any time. For that reason, it’s always worth seeking professional advice before making any decisions.

There's a CGT tax-free allowance of £6,000 for the tax year 2023/2024, called the "Annual Exempt Amount"

What is Capital Gains Tax?

Capital Gains Tax, also known as CGT, is a tax you pay when you sell or dispose of an asset that has increased in value over time. Assets can include things like shares, property (if it’s not your home), or even collectables.

CGT is only payable if you exceed your annual allowance, explained below. The tax is then calculated based on the difference between the amount you paid for an asset, and the amount you sold it for. In other words, it’s a tax on the profit you made from selling the asset.

How does Capital Gains Tax work?

When you sell an asset, it will be worth more, the same, or less than you paid for it. By subtracting the purchase price (plus any associated costs, such as legal fees) from the sale price (minus any selling expenses), you’ll be able to calculate your ‘gain’.

The next question is whether that gain is taxable. Not all assets are subject to CGT, and certain exemptions and reliefs are available. For example, you don’t have to pay CGT on your primary residence (your home), or assets held in ISAs or pensions.

If your gain is taxable, you’ll need to work out how much tax you owe. The rate you pay depends on your taxable income, and the type of asset you’re selling. In the UK, there are two rates for individuals:

  • Basic rate taxpayers: 10% for assets and 18% for residential property (excluding your primary home)
  • Higher and additional rate taxpayers: 20% for assets and 28% for residential property (excluding your primary residence)

These rates are subject to change. Check the latest information at

What is the Capital Gains tax-free allowance?

There’s a CGT tax-free allowance called the “Annual Exempt Amount” (AEA). It applies each tax year and for tax year 2023/2024 it’s £6,000.

Like any tax rate, this figure is subject to change. In tax year 2022/23 it was £12,300, and for 2024/25 there are plans to reduce the exemption even further to just £3,000. So make sure you keep an eye on the HMRC website for updates.

If your total gains for the year are below this annual allowance, you don’t have to pay any CGT. If your gains exceed the allowance, you only pay CGT on gains made above the AEA.

You'll need to complete a Self-Assessment tax return to report and pay your CGT

When do I need to pay Capital Gains Tax?

You’ll need to pay CGT when you sell or dispose of a taxable asset that has increased in value, over and above your annual exempt amount. Even if you’ve given the asset away as a gift, or exchanged it for something else, you might still need to pay CGT based on the asset’s market value at the time of disposal.

You’ll need to complete a Self-Assessment tax return to report and pay your CGT. The tax year runs from 6th April to 5th April. The deadline for filing your return and paying any CGT you owe is 31st January, following the end of the tax year.

For UK residential property sales, there’s a separate reporting and payment deadline. You must report the sale and pay any CGT due within 30 days of the completion date. If you miss the deadline, you may face a penalty.

A qualified tax adviser or financial planner will be able to advise you on your potential CGT liability, and any steps you might need to take.

How can I reduce my Capital Gains Tax?

Like any tax, CGT can erode the value of your assets and investments. But, depending on your circumstances, there are some steps you could take to ensure your tax exposure is minimised.

1. Use your annual allowance: You have a tax-free allowance each year. If possible, plan your asset disposals to spread the gains across multiple tax years, and make the most of your Annual Exempt Amount (AEA).

2. Transfer assets to your spouse or civil partner: If you’re married or in a civil partnership, its often possible to transfer assets to your spouse or civil partner. This has the potential to double your tax-free allowance and reduce the CGT rate, if they are in a lower tax bracket. Just remember that they will be liable for CGT when they sell the asset.

3. Offset your losses: If you’ve made a capital loss on an asset, you can offset it against your capital gains, reducing your overall tax liability. You’ll need to report the loss on your Self-Assessment tax return, even if you don’t have any gains to offset it against in the current tax year.

4. Invest in tax-efficient vehicles: Consider investing in assets that are exempt from CGT – the most common being as ISAs and pensions. There are other government-backed investment schemes that can help you reduce your CGT exposure too, although these are typically much higher risk investments aimed at wealthier investors. If you plan to use tax-efficient investments as part of your tax planning strategy, remember that their value can fall as well as rise and you may not get back the full amount you invest.

5. Make use of reliefs: Several ‘reliefs’ are available that can reduce your CGT liability, such as Entrepreneurs’ Relief (now called Business Asset Disposal Relief), Private Residence Relief, and Gift Hold-Over Relief. Research these reliefs and take advantage of any you’re eligible for.

What should you do next?

Tax planning is complex and rules change frequently, so you should always seek advice from a qualified professional before you take any steps to reduce your CGT liabilities.

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