Capital Gains Tax (CGT) is the tax you pay on the profit when you sell (or ‘dispose of’) an asset that has increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.
If you bought a painting for £5,000 and sold it later for £25,000, your capital gain is £20,000. You pay tax on that £20,000 (minus your annual allowance), not the full sale price.
Understanding CGT is vital for investors, particularly landlords and property owners, as it directly impacts your final Return on Investment (ROI).
You do not pay CGT just for owning an asset; you pay it when you dispose of it. “Disposing” covers more than just selling. It includes:
Note on Transfers: You do not pay CGT on assets you give or sell to your husband, wife or civil partner. However, they may have to pay tax on any gain if they later dispose of the asset.
In the UK, CGT applies to “chargeable assets.” Common examples include:
Since the changes introduced in late 2024, the tax rules have shifted. The amount you pay depends on your total taxable income.
For the 2025/26 tax year, the Annual Exempt Amount is £3,000 for individuals (£1,500 for trusts). You only pay Capital Gains Tax on your total gains above this amount.
Once your total gains exceed the £3,000 allowance, the tax rate is applied to the remainder.
| Your Income Tax Band | CGT Rate (Residential Property & Most Assets) |
| Basic Rate | 18% |
| Higher / Additional Rate | 24% |
Note: If you are a basic rate taxpayer but the gain pushes your total income into the higher rate band, you may pay 18% on the amount within the basic band and 24% on the rest.
Calculating your liability can be complex but the basic formula follows these steps:
Pro Tip: Do you have losses from other investments? You can report “allowable losses” to HMRC to offset your gains, reducing your tax bill.
Navigating UK tax rules (especially with recent rate changes and the 60-day reporting window for property) requires expertise.
At Prosperity Group, we do more than just help you acquire property; we help you build a tax-efficient portfolio. Our investment team works alongside specialist mortgage brokers and management teams to ensure your investment strategy is strong from day one.
Contact us today to find out how we can support your property journey. You can call us on +44 (0) 121 237 4610, speak to us via our live chat or send us a message via the form on our contact page.
View our UK Property Investment Developments.
The Annual Exempt Amount for the 2025/26 tax year is £3,000 for individuals. You only pay tax on gains that exceed this threshold.
No. If the property has been your main home for the entire time you’ve owned it, you qualify for Private Residence Relief. However, if you have let part of it out, used it for business or it has very large grounds (over 5,000 sqm), you may be liable.
For most assets (like shares), you report it in your Self Assessment tax return by 31st January following the end of the tax year.
Crucially, for UK residential property, you must report and pay the tax using HMRC’s “Capital Gains Tax on UK property” service within 60 days of the sale completion.
No. Unlike the US system, the UK does not offer lower tax rates simply for holding an asset for more than a year. However, specific reliefs like Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) may apply to business owners, offering a 10% rate on qualifying assets.
