Comprehensive Guide to Capital Gains Tax (CGT) in the UK
Capital Gains Tax (CGT) applies when you sell, transfer, or dispose of assets and make a gain. Understanding how CGT works, available exemptions, and tax reliefs can help reduce tax liabilities. This guide covers everything from CGT computations to tax planning strategies for individuals, businesses, and trusts, with real-life scenarios for better understanding.
1. The Scope of Capital Gains Tax
CGT applies to gains on the sale or transfer of chargeable assets, including:
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Land and buildings (UK and overseas for UK residents)
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Shares and securities
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Business assets
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Chattels (personal possessions worth over £6,000, except for cars)
Exempt assets include: ✅ Principal private residence (if fully qualifying)
✅ UK government bonds (gilts)
✅ Betting, lottery, and pools winnings
✅ Personal chattels (wasting assets, e.g., antiques with a life of ≤50 years)
Real-Life Scenario:
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Sarah, a landlord, sells a buy-to-let property for £350,000, which she originally purchased for £200,000. After deducting legal and selling fees of £10,000, her chargeable gain of £140,000 is taxed under CGT rates.
2. Computing Gains and Losses
CGT Calculation Formula:
(Sale Proceeds – Allowable Costs) – Annual Exemption = Taxable Gain
Allowable Costs Include:
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Purchase price and acquisition costs (legal fees, stamp duty)
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Improvement costs (but not repairs)
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Incidental selling costs (estate agent fees, legal costs)
Real-Life Scenario:
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Mark buys shares for £5,000 and sells them for £15,000. After deducting £500 broker fees, his taxable gain is £9,500.
Treatment of Capital Losses:
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Offset against current or future gains.
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If losses exceed gains, they carry forward indefinitely.
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Losses in the year of death can be offset against income tax liabilities.
Example:
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Jane bought shares in a startup for £20,000, but the company collapsed, making her shares worthless. She claims a £20,000 capital loss, reducing her CGT liability on other gains.
3. Capital Gains on Property Sales
Principal Private Residence Relief (PPR)
If a property was your main home throughout ownership, it is exempt from CGT. If rented out or used partially for business, a partial exemption applies.
Disposal of Land & Buildings
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Small part disposals of land may qualify for partial relief.
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Gains from UK land by non-residents are now subject to CGT.
Real-Life Scenario:
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Tom sells a second home that was rented out, triggering CGT at 18% (basic rate) or 28% (higher rate) after the annual exemption (£6,000 for 2025 tax year).
4. Disposal of Shares & Securities
Share Matching Rules for Individuals:
When selling shares, HMRC applies matching rules:
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Shares bought on the same day.
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Shares acquired in the previous 30 days.
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Remaining shares are grouped using average cost method.
Gift of Quoted Shares:
Gifting shares can trigger CGT, unless given to a spouse or charity.
Exemptions for Corporate Bonds & Gilts:
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UK government bonds (gilts) and qualifying corporate bonds (QCBs) are CGT-exempt.
5. Exemptions & Reliefs to Minimise CGT
Entrepreneurs’ Relief (Business Asset Disposal Relief)
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10% CGT on the first £1 million of qualifying gains from selling a business.
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Must have owned at least 5% of shares and voting rights for 2+ years.
Real-Life Scenario:
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Emma sells her dental practice for £800,000 and qualifies for Business Asset Disposal Relief, paying only 10% CGT instead of 20%.
Investors' Relief
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10% CGT rate for qualifying shares held for 3+ years.
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Available to external investors (not employees/directors).
Rollover Relief
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Defers CGT if sale proceeds are reinvested into another qualifying business asset.
Example:
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A farmer sells land for £500,000 and reinvests in another agricultural property, deferring CGT under Rollover Relief.
6. Capital Gains Tax & Transfers
Transfers Between Spouses & Civil Partners
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No CGT on transfers between spouses/civil partners.
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Beneficial for tax planning by transferring assets to a lower tax bracket spouse before selling.
Double Tax Relief
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If CGT is paid abroad, double taxation treaties may apply.
Real-Life Scenario:
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Peter, a UK resident, sells property in Spain. He pays Spanish CGT and claims double tax relief to offset UK CGT liability.
7. Special CGT Rules & Loss Claims
Negligible Value Claims
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Allows taxpayers to declare worthless assets as a capital loss.
Insurance Proceeds from Destroyed Assets
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If an asset is lost/damaged, insurance payouts may be subject to CGT unless full reinvestment occurs.
Example:
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A fire destroys Robert’s commercial building. He reinvests the insurance payout, avoiding CGT on compensation.
8. How Acumen Can Help with CGT Planning
Proper CGT planning ensures tax efficiency when disposing of property, shares, or business assets. Acumen Accountants and Tax Advisers provide expert guidance on CGT mitigation strategies.
Our Services Include:
✅ CGT calculations & reporting
✅ Exemptions & relief claims
✅ Business asset disposal planning
✅ EIS/SEIS investment strategies
✅ International tax considerations
Final Thoughts
With careful planning, you can minimise CGT liabilities by utilising exemptions and reliefs effectively. For expert CGT advice, contact Acumen Accountants and Tax Advisers today.
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Disclaimer
This article is for informational purposes only and does not constitute legal, tax, or financial advice. The tax laws and regulations mentioned may change, and individual circumstances may vary. It is recommended to consult a qualified accountant or tax professional before making any decisions regarding Capital Gains Tax (CGT) or other tax matters.
