Capital gains tax is a tax on the profit made after selling an investment held outside of an ISA or pension.
Only the profit you make (if any) is subject to tax, not the total amount of money you receive from the sale. So, if you buy a share for £10,000 and sell it for £11,000, your gain of £1,000 could be subject to capital gains tax.
What is the capital gains tax allowance?
How much is capital gains tax?
UK taxpayers are entitled to a capital gains tax allowance, which is the amount of profit they can make each year before owing tax.
For the 2024/2025 tax year, the capital gains tax allowance is £3,000.
You won’t need to pay capital gains tax if your combined profits are below this threshold.
The 2024 Autumn Budget included immediate increases in the rates at which capital gains tax (CGT) is paid on any profits made from the sale of assets, such as second homes or shares.
The lower rate of CGT has gone up from 10% to 18%, and the higher rate from 20% to 24%. This brings them into line with the rates on residential property, which will remain at 18% and 24%.
The increased rates took effect from 30 October 2024.
Remember – investments within a tax-efficient ISA are sheltered from tax, meaning there will be no capital gains tax to pay when you sell those investments.
This is why it’s good practice to take advantage of your annual ISA allowance, which is currently £20,000. Over time, a stocks and shares ISA can help you shelter a significant investment portfolio from tax.
Keep in mind that tax rules can change and any benefits will depend on your individual circumstances.
If you’re investing outside of an ISA, make sure you understand your income tax band and capital gains tax allowance, so you know how much tax you might need to pay.
To calculate any capital gains tax owed on investments held outside of an ISA or pension, you’ll need:
Suppose you buy shares for £15,000 and sell them for £20,000, which gives you a profit of £5,000.
As of 2024/2025, your capital gains tax allowance is £3,000, meaning your taxable profit is £2,000.
If you’re a basic rate taxpayer, you’ll pay £360 or 18% of the taxable profit.
If you’re a higher or additional rate taxpayer, you’ll pay £480 or 24% of the taxable profit.
Remember – if you sell multiple investments in a single tax year, you’ll need to add their purchase prices and selling prices to work out the total capital gains on all your investments.
There are special rules if you sell an investment and then buy the same investment within 30 days.
You can find out more and calculate your capital gains at GOV.UK.
You must report any capital gains on your self-assessment tax return. The deadline for filing is 31 January of the year following the tax year in which the sale occurred.
For example, if you sold an investment in December 2023 as part of the 2023/2024 tax year, you must include it on a self-assessment tax return due by 31 January 2025.
If you don’t normally complete a self-assessment tax return, you can use HMRC’s ‘real time’ capital gains tax service available through GOV.UK.
Before you report your capital gains, you’ll need:
It’s good practice to keep records of the investments you buy and sell to make it easier to report any gains.
Remember, when it comes to investing, there’s always risk involved, and you might get back less than you invest. Tax rules can also change and any benefits will depend on your circumstances.
If you’re thinking about investing for the first time, read our guide for new investors.
This article was last updated: 28/11/2024, 05:24
