What is Capital Gains Tax?

Capital Gains Tax is what you will pay on any gains above your tax-free allowance (called the Annual Exempt Amount/AEA).

Your Capital Gains Tax allowance includes all the realised gains you make across any investments you’ve sold that year (i.e. stocks and themed funds, but also rental properties or art). If your total net capital gain for the year is within the government allowance (£3,000 for individuals in the 2024/2025 tax year), it’s tax-free and there’s no need to report it.

Significantly, any capital losses you’ve realised that year (i.e. investments you’ve sold at a loss) count against your gains, which could keep you under the allowance. For instance, if in a tax year, you sell one investment at a £4,000 gain and another at a £2,000 loss, your net capital gain is £2,000 and under the allowance.

Capital Gains Tax is calculated on the gain from the original date of purchase, not the growth of your portfolio year-to-year. If you’re planning to invest for the long term, compounding means £3,000 becomes an achievable gain on comparatively small initial investments.

Any gains over the Capital Gains Tax allowance of £3,000 should be declared on your annual HMRC self-assessment tax return. Please note, tax treatment depends on the individual circumstances of each client and may be subject to change in future.
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Please note, it’s important to stay up-to-date with the latest guidance from HMRC as these amounts are subject to change by the government. You can view the latest information on Capital Gains Tax on the HMRC website.