What is capital gains tax?

If you run your own business, it’s important to have a basic understanding of the rules surrounding capital gains tax and whether they apply to you. Our simple guide shows you how capital gains tax works, how it’s calculated and what you pay it on.

Written by

Mubina Pirmohamed

Business and landlord insurance expert

Last Updated

13 DECEMBER 2024

5 min read

What is capital gains tax?

Capital gains tax (CGT) is a tax on the profit you make when you sell or give away an asset that has increased in value. It’s the profit that’s taxed, not the total you receive for the asset.

Business assets you may need to pay tax on include:

Land and buildings
Fixtures and fittings
Plant and machinery – for example, a digger
Shares
Registered trademarks
Your business’s reputation (HMRC sees this as a measurable asset when you sell a business).

CGT can apply if you’re self-employed as a sole trader or in a business partnership. It’s another thing you may need to think about when planning ahead, along with business insurance and budgeting.

Other organisations, like limited companies, pay corporation tax on profits from selling their assets.

Find out more about the differences between sole traders and limited companies.

What is the capital gains tax allowance?

Everyone gets a capital gains tax allowance, which means you only have to pay tax on profits from assets that are above this threshold.

For the 2024/25 tax year, you can make £3,000 of gains before you’re taxed (or, for trusts, the first £1,500).

You’ll have to take this into account when working out how much CGT you owe. If your gains are below this amount in the tax year (6 April to 5 April), there’ll be no CGT to pay.

If you don’t make full use of your tax-free allowance when selling your assets, you can’t carry it forward to the next tax year.

How much is capital gains tax in the UK?

There are three main sets of rates of capital gains tax:

For property
Carried interest for the share of the profits which managers of an investment fund receive where the investments in the fund perform above a certain level
For other assets.

How much you pay depends on:

The type of asset you’ve sold
Profit or gain made
Your income tax band and the current tax-free allowance
If you have losses on chargeable assets too.

UK capital gains tax rates

For the 2024/25 tax year, the capital gains rates are as follows:

If you pay basic rate income tax

If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

Work out how much taxable income you have. This is your income minus your personal allowance and any other income tax reliefs you’re entitled to.
Work out your total taxable gains.
Deduct your tax-free allowance from your total taxable gains.
Add this amount to your taxable income.
If this amount is within the basic income tax band, you’ll pay 18% on your gains made from 30 October 2024. For gains made between 6 April 2024 to 29 October 2024, you’ll pay 10% on your gains (or 18% on residential property and carried interest).
For any amount above the basic income tax band, you’ll pay 24% on gains made from 30 October 2024 (or 28% on carried interest). For gains made between 6 April 2024 and 29 October 2024, you’ll pay 20% (or 24% on residential property and 28% on carried interest).

If you pay higher rate income tax

If you’re a higher or additional rate taxpayer, the amount you pay will depend on the date and type of your gain.

Gains from 30 October 2024 onwards

You’ll pay:

24% on your gains from residential property
28% on your gains from carried interest if you manage an investment fund
24% on your gains from other chargeable assets.

Gains between 6 April 2024 to 29 October 2024

You’ll pay:

24% on your gains from residential property
28% on your gains from carried interest if you manage an investment fund
20% on your gains from other chargeable assets.

You can see the rates and allowance for previous years.

Visit GOV.UK to find out more about tax bands and rates.

Can you get tax relief on capital gains?

There are a number of tax reliefs around CGT that you might be able to use to reduce or delay the amount you have to pay. These include:

Business asset disposal relief: sole traders and business partners can get a reduced 10% CGT rate on qualifying profits if they sell all or part of their business. This is designed to incentivise entrepreneurs to grow a business.
Incorporation relief: you can delay paying CGT when transferring your business to a company in return for shares.
Business asset rollover relief: you can delay paying CGT if you sell or give away assets that you’ll replace. You must buy the new asset within three years of disposing of the old one.
Gift hold-over relief: you don’t have to pay CGT if you gift a business asset to someone. The person you give it to pays tax when they sell it. You need to have used the business asset for trading as a sole trader or partner.

How to calculate capital gains tax

To work out how much (if anything) you’ll have to pay, you will need to:

Calculate the gain

This is the difference between how much you paid for the asset and how much you sold it for. In some cases, you might need to use the market value, for example if the asset was a gift or you inherited it.

Deduct costs and tax allowance

In addition to the tax-free allowance you already get, you can subtract certain costs from the gain. These include fees for advertising the asset, funds spent on improving it, legal fees associated with the sale, and stamp duty and VAT.

There are some costs you’re not allowed to deduct. These include interest on a loan to buy the asset or costs you can claim as business expenses.

If you’re not confident about the calculation or what you can and can’t claim for, it’s a good idea to seek the advice of a tax specialist. Otherwise, you could end up paying the wrong amount.

See if you can claim tax relief

Tax reliefs can reduce the amount of CGT you need to pay. As mentioned above, these include business asset disposal relief, incorporation relief, business asset rollover relief and gift hold-over relief.

Capital gains tax example

We’ve laid out some example costings to give you a basic idea of how CGT is calculated from 30 October 2024:

Your total taxable income = £20,000 (basic rate taxpayer)
Your taxable gains from selling shares in your business = £12,600
Your tax-free allowance of £3,000 is deducted from your gains of £12,600
That leaves you with tax owed on £9,600
Add this to your taxable income. Because the combined amount of £29,600 is less than the basic rate band for the 2024 to 2025 tax year, you pay Capital Gains Tax at 18%.
This means you’ll pay £1,728 in capital gains tax.

What happens if you have losses on chargeable assets?

If you have losses rather than gains, you can report the losses to HMRC to reduce your total taxable gains.

When you report a loss, the amount is deducted from the gains you made in the same tax year.

If your total taxable gain is still above the tax-free allowance, you can deduct unused losses from previous tax years. If they reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.

Claim for your loss by including it in your tax return.

Get CGT expert help if you need it

Working out capital gains tax can be a complicated process, so it’s recommended you speak to a qualified accountant or tax advisor. They’ll be able to help you with the calculations and ensure you don’t make any costly mistakes when filing your tax return.

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Frequently asked questions

How do I pay capital gains tax?

To pay CGT on property, you’ll need to use a HMRC capital gains tax on UK property account and settle your bill within 60 days of the sale.

You can report all other assets using the ‘real time’ capital gains tax service or just wait until you fill out your next self-assessment tax return.

What are capital losses?

A capital loss is incurred when you sell an asset for less than you bought it for. You can offset losses against any capital gains you make in the same tax year. If you’ve made a loss overall, you can carry it forward to a future tax year, with some limitations.

How can I reduce capital gains tax when selling an asset?

It’s a good idea to plan any business sale in advance to make sure you take advantage of any tax reliefs you may be eligible for and structure the sale in the most tax efficient way.

You should also try to maximise the potential sale value. It might be best to seek expert advice from an accountant so you don’t pay more CGT than you have to.