Introduction: Capital Gains Tax – A Pain or a Planning Opportunity?

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Let’s face it—most people don’t get excited when they hear the word “tax.” But knowing how Capital Gains Tax (CGT) works in the UK can actually save you a decent chunk of money, if you play your cards right. Whether you're selling a second property, offloading some shares, or cashing in on a business investment, CGT is something you need to understand.

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In this guide, we’ll break down the essentials of Capital Gains Tax in a way that actually makes sense—no dry legal jargon, just useful info you can apply. We'll also share some pro tips on how to keep your tax bill as low as possible (legally, of course!).

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What Exactly is Capital Gains Tax?

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In simple terms, Capital Gains Tax is a tax on the profit you make when you sell (or ‘dispose of’) something that’s increased in value. It's the gain that's taxed, not the total amount you receive.

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Think of it like this:

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You bought a piece of artwork for £2,000, and years later, you sell it for £5,000. That’s a £3,000 gain—and that’s what may be subject to CGT.

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Common Assets That Might Be Subject to Capital Gains Tax:

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• Second homes or buy-to-let properties

• Shares and investments (that aren’t inside an ISA or pension)

• Business assets

• Personal possessions worth over £6,000 (like antiques or jewellery)

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When and How is Capital Gains Tax Paid?

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Timing matters. For individuals, the tax year runs from 6 April to 5 April. You normally report and pay any CGT due by 31 January following the end of the tax year in which you sold the asset.

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However, if you sell a residential property (that isn’t your main home), you now have just 60 days to report and pay the CGT due. This changed recently, and many people still get caught out.

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To report it, you’ll usually need to use the Government Gateway or include it in your Self Assessment Tax Return.

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How Much is Capital Gains Tax in the UK?

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Rates vary depending on your income and the type of asset:

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Basic-rate taxpayers:

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• 10% on most assets

• 18% on residential property

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Higher or additional-rate taxpayers:

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• 20% on most assets

• 28% on residential property

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And before you ask—yes, there’s an annual tax-free allowance (called the Annual Exempt Amount). For the 2025/26 tax year, it’s £3,000 for individuals. Anything above that, and you could be taxed.

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Capital Gains Tax on Property

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This is a big one. If you’re selling a second home or a rental property, CGT can be one of your largest tax bills. Here's how it breaks down:

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• Private Residence Relief may apply if the property was your main home at some point.

• Letting Relief might be available if it was rented out.

• Improvements (not repairs) to the property can be deducted from your gain.

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Selling property is one of the most common triggers for CGT, so make sure you get professional advice before making a move.

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How to Reduce Your Capital Gains Tax Bill

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Here’s where things get interesting. You can legally reduce your CGT bill if you plan smartly:

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1. Use Your Annual Allowance: Don’t waste it—consider spreading disposals across tax years to maximise relief.

2. Offset Capital Losses: If you’ve made a loss on another asset, you can deduct it from your gains.

3. Transfer to a Spouse or Civil Partner: You can transfer assets tax-free and double your allowance as a couple.

4. Make Use of ISAs and Pensions: Gains made inside these wrappers are CGT-free.

5. Consider Entrepreneurs' Relief (now Business Asset Disposal Relief): You could pay just 10% CGT on qualifying business disposals.

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Common Mistakes to Avoid

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• Forgetting to report within 60 days of selling UK residential property.

• Not keeping records of purchase and improvement costs (which help reduce the gain).

• Misunderstanding what counts as a “gain.” It’s not just money in the bank—it’s the profit above your original cost, minus allowable expenses.

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Is Capital Gains Tax Changing in the UK?

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It might. Capital Gains Tax is a hot topic in government, and the rules can change quickly. In recent years, we’ve seen the tax-free allowance reduced and deadlines for reporting shortened. That’s why it’s essential to keep up-to-date (or work with someone who does!).

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Conclusion: Get Ahead of the Game with CGT

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Capital Gains Tax doesn’t have to be a nasty surprise—it can be something you manage and plan for. Whether you're a casual investor, a landlord, or a business owner, knowing how CGT works (and when to get advice) can make a real difference to your bottom line.

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Not sure how it applies to your situation? Get in touch with an experienced accountant (like us!) and we’ll help you navigate the ins and outs with zero jargon and maximum efficiency.