Capital Gains Tax explained

When our expert team of financial advisers at PIL Southampton is helping our clients with their financial affairs, it’s almost guaranteed that Capital Gains Tax (CGT) is going to be part of the equation. The rules and reliefs can be quite complex, so we’re explaining the key principles here for your easy reference.

What is Capital Gains Tax?

CGT is the tax you have to pay when you make a profit – ‘gain’ – from selling something substantial that you own that you are not usually in the business of selling. 

It usually applies to second properties, inherited properties, investment funds, shares, a business, assets transferred below their market value, and valuables like jewellery, art and antiques.

How much is Capital Gains Tax in the UK?

There is no CGT due for any gain below your annual £3,000 allowance. For any eligible gains above £3,000, if you pay standard rate income tax your CGT rate in the 2025/26 tax year is 18%. If you pay higher rate income tax, your CGT rate is 24%.

How does Capital Gains Tax work?

CGT applies to assets you have owned for at least one year. When you sell an asset that is liable for CGT, you have to pay the appropriate rate of CGT on any gain you made on that asset above your annual allowance. 

If a sold asset is jointly owned, for example by spouses or civil partners, both individuals’ unused annual allowance can apply, which means that CGT wouldn’t apply until a gain of at least £6,000 had been made.

Spouses and civil partners are allowed to transfer assets to help reduce any CGT liability, though it’s worth noting that, if you later sell that asset, the CGT amount due will be based on the total time the asset has been owned by the two of you, not the date the asset was transferred.

We recommend that you take advice from a qualified financial adviser, like the team at PIL Southampton, before you take this kind of action. This is to make sure that you are considering your whole financial situation and taking into account any other tax reliefs that may be relevant.

When do you have to pay Capital Gains Tax?

Apart from when the CGT is due to selling a second property, you declare any gains in your annual self-assessment tax return, applying the relevant tax band rate.

When CGT is due to selling a second property, you have 60 days after completion of the sale to declare and make your appropriate payment to HMRC.

Gifts and other disposals

There are various CGT rules regarding giving assets away, that an experienced financial adviser can advise you on, based on who you are giving the asset to. Note: special reliefs apply to business assets.

Inherited assets

You will only have to pay CGT on an inherited asset when you sell it. It is therefore very important that you know and keep a record of the value of the asset when you inherited it. This is because any CGT due at time of sale will be calculated from deducting the value of the property when you inherited it from your sale price.

Exempt assets

Common examples of assets exempt from CGT include gifts to UK registered charities, cash, stocks and shares held in an ISA, competition prizes and betting wins, vintage cars and any cars owned solely for personal use.

The annual exempt amount

Every individual can gift assets up to £3,000 each year, without having to pay CGT. Couples sharing assets they are selling can combine their CGT allowance.

Capital Gains Tax Reliefs

Governments have periodically created a wide range of CGT reliefs that you can potentially benefit from. Some of the common ones are explained here:

Business Asset Disposal Relief (BADR), formerly known as

Entrepreneurs’ relief

Having originally been introduced to incentivise people to grow a business for disposal by reducing CGT to a 10% flat rate, in the Autumn Budget 2024 the government announced increases to 14% from the 2025/26 tax year and to 18% from the 2026/27 tax year.

The reduced rate applies regardless of your income, and can be claimed multiple times up to the £1 million lifetime allowance.

To meet BADR criteria when selling shares up to two years before the business is sold, the individual selling shares must be an employee or officer within the organisation, the person making the gain must own at least 5% of the ordinary share capital of the business, and the business must have been a trading company.

Principal Private Residence (PPR)

PPR is the tax relief that means you don’t have pay CGT on your main home, as long as you have permanently lived there throughout your ownership of that home. If you haven’t lived there the whole time, you may be liable for CGT when you sell.

There is a nine-month period of exemption, called the ‘final period exemption’ which means you don’t have to pay CGT on gains made during your final nine months of ownership, even if the property was rented out.

It is also worth finding out if other reliefs known as ‘deemed occupation’ would be applicable in your circumstances, increasing the amount of PPR you can claim.

Investors’ Relief (IR)

IR gives CGT relief to individual investors when they dispose of ordinary shares, reducing the tax rate on gains to 10% for higher rate taxpayers. Any applicable disposals must have been made since 6 April 2019 and the investments held for at least three years, made on or after 17 March 2016.

This relief is only available on unlisted shares. It is capped at a lifetime sum of £1 million and is increasing in line with BADR rates.

Circumstances where CGT doesn’t apply

Generally speaking, CGT does NOT apply in the following scenarios:

• Selling your primary residence; your main home.
• Selling or gifting cars that only have a personal use.
• Selling or gifting assets that have a useful lifespan of less than 50 years. These are known as ‘wasting assets’.
• Gifts between civil partners and married couples.
• Gifts of possessions that don’t exceed an annual value of £6,000 per couple, or £3,000 per individual.
• Charity donations.
• Gold, silver and platinum coins.
• UK government gilts.
• Gains on certain tax-efficient investments.
• Employee shares held in approved share incentive schemes.
• ISAs and PEPs.
• Lottery winnings and betting winnings.
• Proceeds from life insurance policies.
• National Savings & Investments products, pensions and child trust funds.

How PIL Southampton can help you 

Our expert, qualified team of expert financial advisers can guide you on your personal CGT liabilities, based on your own specific circumstances. Tax affairs can be complex and it is important that you consider your CGT responsibilities as part of your wider tax planning including Stamp Duty, VAT and Income Tax obligations.

How you can contact PIL Southampton

You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.