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Capital gain

  • 2 min read

A capital gain is a profit that you make when you sell an asset. An asset could be anything from a property to shares in a company, to a cryptocurrency, to a piece of art, to a vintage car – and more.

Essentially, a capital gain is the difference between the price you buy your asset for and the price you sell for. When you make a profit on an asset, you may have to pay tax on it.

How much is Capital Gains Tax?

There is a tax-free Capital Gains Tax allowance of £3,000. This means that you don’t have to pay tax on the first £3,000 of profit that you earn. Anything that exceeds this limit is subject to tax at these below rates:

Type of asset Basic rate Higher rate
Shares 10% 20%
Residential property 18% 28%
Cryptocurrency 10% 20%
Other 10% 20%

 But there are other exemptions to be aware of. For example, when you sell your private residence (i.e the home you live in), this isn’t subject to Capital Gains Tax. 

How does a capital gain work in action?

Here’s an example of how Capital Gains Tax works in action👇

  • Let’s say that Sarah,  a UK tax resident, bought a buy-to-let property for £100,000 in 1990
  • 30 years later, on July 1st, 2023, she sold it for £300,000
  • Her capital gain is £200,000 (£300,000 minus £100,000) 
  • Her taxable capital gain is the capital gain (£200,000) minus the Capital Gains Tax allowance (£3,000 in the 2024/2025 tax year) = £197,000
  • This is what she will pay Capital Gains Tax on

If you sell an asset for less than you bought it, you make what it’s called a capital loss. You can use this loss (also known as offsetting) to reduce other capital gains you’ve made and, ultimately, pay less tax.

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