How does the Capital Gains Tax allowance work?
When you sell or dispose of certain assets for a profit, you may pay Capital Gains Tax, but everyone has a tax-free allowance each year before the tax applies. Only gains above the allowance are taxed. Some assets, such as your main home in most cases, are usually exempt.
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Check what you're owed →Capital Gains Tax applies to the profit you make when you dispose of certain assets, such as shares, investments or a second property, rather than to the whole amount you receive. Each year you have a tax-free allowance, and only the total gains above that allowance are subject to tax, so smaller gains may fall entirely within it.
Not everything is caught. Many disposals are exempt or relieved — for example, selling your main home usually qualifies for a relief that removes the tax in most cases, and gains within tax-free wrappers like ISAs are not chargeable at all. The rate of tax on gains above the allowance depends on factors including your income and the type of asset.
Because the annual allowance is a set figure that can change, and the reporting rules vary by asset, it is worth checking the current position on GOV.UK before you sell. Keeping records of what you paid and received for assets makes it much easier to work out your gain and confirm whether you have anything to report or pay.
How to work out Capital Gains Tax
- Identify chargeable disposals. Work out which of your disposals are potentially chargeable and which are exempt or relieved.
- Calculate your gain. For each asset, deduct what you paid and allowable costs from what you received to find the gain.
- Apply your allowance. Set your annual tax-free allowance against your total gains to see how much, if any, is taxable.
- Report if required. Follow the GOV.UK reporting rules for the asset type and report or pay any tax due on time.
Frequently asked questions
- Is the whole sale price taxed?
- No. Capital Gains Tax applies to the profit, or gain, not the total amount you receive, and only to gains above your annual allowance.
- Is my main home taxed?
- In most cases selling your main home qualifies for a relief that removes Capital Gains Tax, though there are conditions.
- Are ISA gains taxed?
- No. Gains on investments held within an ISA are tax-free and do not count towards your Capital Gains Tax position.
- When do I need to report a gain?
- It depends on the asset and the amounts involved. Check the current reporting rules on GOV.UK, as they differ between asset types.
MoneyFinder is an independent sign-posting service that helps you find financial support you may be entitled to. We are not a government body and do not provide financial advice. Figures are taken from the official sources cited above and were correct when last checked — always confirm current details on the linked GOV.UK pages.