When capital gains tax applies to your investments

If you sell shares, funds, investment trusts or exchange-traded funds outside an ISA, you may have to pay capital gains tax (CGT) on the profit. Only the gain is taxed — the difference between what you paid to buy and what you receive when you sell, after certain costs. Investments held in an ISA or a pension are generally free of UK CGT, so the same shares can behave very differently depending on the wrapper.

CGT can also apply to unit trusts, private company shares and certain cryptoassets. Gifts of investments can count as disposals too, even if no money changes hands. For most everyday investors, the key trigger is a sale outside a tax shelter.

Allowances, rates and the tax year

The tax year runs from 6 April to 5 April. Each individual has an annual exempt amount — currently £3,000 — which is the gain you can realise in a tax year before CGT is due. It is per person, not per household, and cannot be carried forward. Use it or lose it.

For shares and most other investments disposed of on or after 30 October 2024, CGT rates are 18% for basic-rate taxpayers and 24% for higher or additional-rate taxpayers. Residential property has different rates. Your rate depends on your taxable income and gains, so check carefully if you are near a band boundary.

• Use both allowances: If you are married or in a civil partnership, transfers between you are generally treated as no gain and no loss, so you can move investments to use your spouse’s allowance and rate band.
• Watch the timing: Selling in one tax year rather than another can use two annual exempt amounts, but the disposal must complete in the right tax year.
• Remember losses: Losses can reduce your gains. Claim them within the time limits and keep evidence. Unused losses can usually be carried forward.

Calculating your gain and identifying shares

Your gain is usually the sale proceeds minus the buying cost and any allowable costs of buying or selling. Allowable costs can include stamp duty reserve tax, broker commission, platform dealing charges, and fees paid to transfer or sell the shares. If you inherited shares or received them as a gift, different rules can apply, so keep valuation evidence.

If you bought the same company’s shares more than once, HMRC uses matching rules to decide which shares you sold. The order is:

• Shares bought on the same day as the sale.
• Shares bought in the 30 days after the sale — the “bed and breakfast” rule.
• Shares from your existing holding, pooled together in the Section 104 pool.

This matters because the cost of the shares sold affects your gain. A platform’s tax certificate may show a figure, but it is your responsibility to check it. If you have transferred shares between platforms or held them in paper form, your records may need extra work.

Record-keeping that makes tax returns easier

Good records are the difference between a calm tax return and a frantic search through old emails. Keep a simple spreadsheet or ledger for every investment account outside an ISA. For each buy and sell, record the date, number of shares or units, price, total amount, and every fee or tax charge.

• Contract notes and transaction confirmations.
• Platform annual tax certificates and valuation statements.
• Details of reinvested dividends, rights issues, share splits and mergers.
• Records of transfers between spouses or civil partners, including dates and values.
• Loss claims and correspondence with HMRC.

You normally need to keep records for at least five years after the 31 January filing deadline for the relevant tax year. Keeping them longer is wise if you carry forward losses or hold investments for many years. Digital copies are fine, but make sure you can find them if a platform closes or you change provider.

Reporting and paying HMRC

If your gains exceed the annual exempt amount, you usually need to report them and pay any CGT due. For shares and funds, this is normally done through self assessment. The deadline to file and pay is 31 January following the end of the tax year in which you sold. If you already file a tax return, include the disposal in the capital gains section. If you do not usually file, you may need to register for self assessment.

There are penalties for late filing and late payment, and interest can run daily. If you realise near the end of the tax year that you have a gain, check the deadline carefully. A common mistake is to assume the platform will report and pay for you — it will not.

Practical steps to manage your CGT

Start by checking whether you can use an ISA. Moving investments into an ISA — often called “bed and ISA” — involves selling outside the ISA and buying back inside it, which can trigger CGT, but it shelters future growth and income. Do the maths first.

Consider selling across two tax years to use two annual exempt amounts, and use losses deliberately. If you are close to a rate threshold, spreading gains can keep more in the lower rate. Always keep the paperwork.

Tax rules and allowances can change, and everyone’s circumstances differ. For larger portfolios or complex share histories, a regulated tax adviser or accountant can save more than they cost. For most households, the basics are simple: know your allowance, keep your records, and report on time.