Capital gains are made when you sell an asset for more money than you paid for it. As a result, you can be subject to capital gains tax (CGT) which differs according to whether you are an individual or a company.
Who pays capital gains tax?
If you're self-employed or in a business partnership you pay capital gains tax. Limited companies and most unincorporated associations pay corporation tax on capital gains not capital gains tax
Effective tax planning can take advantage of tax allowances and reliefs on capital gains to create a lower overall tax liability.
Rules can be complicated, so take professional advice from your accountant.
Capital gains tax, allowances and rates for individuals, sole traders and partnerships
Capital gains tax (CGT) applies to any gains you make when you sell assets such as land or investments. The assets could be business or personal, although some personal assets are exempt (including your main home). If you make gains on some assets and losses on others, CGT applies to the net overall gain made.
The annual exempt amount is the tax-free allowance for capital gains. You only pay CGT on the amount by which your gains exceed this allowance (if at all). The capital gains tax allowance is £6,000 in 2023/24. The allowance will be fixed at at £3,000 from 2024/25.
The capital gains tax rate that UK individuals pay depends on their total income and is usually 10% or 20% (18% and 28% for residential property).
Various reliefs can also reduce or defer CGT for individuals. These include Business Asset Disposal Relief for individuals selling part or all of their business and Business Asset Rollover Relief, if you reinvest your capital gains in other business assets. Alternatively, you may be exempt from capital gains tax altogether if your gain was invested in shares under the Enterprise Investment or Seed Enterprise Investment Schemes.
Capital gains tax is collected through the self assessment system; you provide details on your self assessment tax return.
Capital gains tax for shares
This HMRC toolkit helps those completing an income tax self assessment tax return by providing guidance on the common errors in relation to capital gains tax for shares.
Download the HMRC Capital Gains Tax for Shares toolkit.
Capital gains tax for land and buildings
This tool helps those completing a self assessment tax return by providing guidance on the common errors in relation to capital gains tax for land and buildings.
Download the HMRC Capital gains tax for land and buildings toolkit.
Capital gains for companies - chargeable gains
Capital gains made by companies are treated differently to those made by individuals and are referred to as chargeable gains.
There is no tax-free annual fixed allowance for chargeable gains made by companies. Instead, you can claim an indexation allowance. This reduces the chargeable gain by allowing for inflation.
Chargeable gains are subject to corporation tax and are included on your corporation tax return. So the tax rate that UK companies pay on chargeable gains (after indexation allowance) is their corporation tax rate.