CGT is charged on the profit you make when you sell an asset, not the amount you sell it for, and only the gain above your annual allowance is taxed.
Capital Gains Tax catches many people by surprise because it is a tax on profit you may never have thought of as income. When you sell an asset for more than you paid, the difference is a "gain", and CGT is charged on that gain, not on the full amount you receive. With the tax-free allowance now slashed to just £3,000 for 2025/26, far more ordinary sales now produce a bill.
You do not have to sell something for cash to trigger CGT. A "disposal" includes selling, gifting, swapping, or even receiving compensation when an asset is destroyed. Common assets that fall within CGT are second homes and buy-to-let property, shares held outside an ISA or pension, business assets, and valuable personal possessions worth over £6,000 (with cars notably exempt).
To find the gain, you take the disposal proceeds and subtract what you originally paid, plus allowable costs such as purchase fees, the cost of improvements, and selling costs like estate agent or legal fees. Our Capital Gains Tax calculator does this arithmetic for you.
Suppose Hannah, a higher-rate taxpayer, sells a buy-to-let flat in 2025/26. She bought it for £180,000, spent £10,000 on a new kitchen and bathroom (a capital improvement), and sells for £250,000 with £4,000 of legal and agent fees.
Her gain is £250,000 minus £180,000 minus £10,000 minus £4,000 = £56,000.
She deducts her annual exempt amount of £3,000, leaving a taxable gain of £53,000. As the gain sits in her higher-rate band, it is taxed at 24%:
£53,000 × 24% = £12,720 of Capital Gains Tax.
Because this is residential property, Hannah must report the gain and pay the £12,720 within 60 days of completion using HMRC's online UK Property service, separately from her annual Self Assessment return.
If Hannah had been a basic-rate taxpayer with room left in her £37,700 basic-rate band, part of the gain could have been taxed at 18% instead of 24%. CGT effectively stacks on top of your income, so where the gain falls between the bands matters.
The most valuable relief is Private Residence Relief, which usually removes CGT entirely on your main home. Business owners may use Business Asset Disposal Relief, taxed at 14% in 2025/26 (rising to 18% from April 2026) on qualifying gains up to a £1 million lifetime limit. Transfers between spouses or civil partners are made on a no-gain, no-loss basis, which is why couples often share assets before a sale to use two annual allowances.
With the allowance now just £3,000, selling a modest share portfolio or a single buy-to-let can create a real CGT bill. Plan disposals across tax years where you can.
TapTax connects to your bank, categorises expenses automatically, and submits quarterly updates to HMRC. Free plan, no card required.
