Capital gains tax is one of the areas expected to change in this week's autumn budget announcement, but what exactly is it, and who has to pay it?

Simply, it’s a tax on money that you make selling things that you own.

This can include selling shares for example, or the sale of business assets or a buy-to-let property.

It can also apply to valuables worth £6,000 or more if you sell them at a profit, and even profits made on cryptocurrency sales. 

It generated £14.4bn for the country last year, and was paid by 369,000 people - a relatively small proportion of the population - although that has doubled over the past 10 years.

How does capital gains tax work? 

Unlike income tax, CGT is not automatically deducted by HMRC, so you need to report it.

There are lots of variables, so it is important to know what needs to be reported.

The bad news is that if you don’t provide accurate reports, you may pay a fine that's bigger than your tax bill, but it is fairly straightforward to work out what you owe.

Do I need to pay CGT on my home or car sale?

You usually don't pay CGT when you sell your main home but will pay it when you sell a second property, a buy-to-let or main home if you've let it out, used it for business, or it's very large.
CGT is not payable on most private car sales.

What if it’s a more complicated situation?

Getting the right financial advice for your circumstances is crucial, and can save you paying a fine. The advice here covers the broad issues, but it’s always wise to speak to a qualified financial adviser who can help you pay the correct amount of tax each year.

How much is capital gains tax?  

In the 2024/25 tax year, you make a gain after selling a residential property, you'll pay 18% capital gains tax as a basic-rate taxpayer, or 24% if you pay a higher rate of tax. Gains from selling other assets are charged at 10% for basic-rate taxpayers, and 20% for higher-rate taxpayers.

You'll only need to pay these rates on the amount over your capital gains allowance.

How much is capital gains tax allowance? 

It’s £3,000 for individuals (£1,500 for trusts) in the 2024/25 tax year, meaning you can make £3,000 of profit on your assets before you have to pay a penny.

How about for couples?

If you jointly own a taxable asset such as a second home, that doubles to £6,000. For married couples, or those in a civil partnership, assets can be exchanged between you.

But, if you transfer assets to a partner and make a gain from this at a later date, the CGT you pay will be based on the total time you owned the asset(s) together rather than the date of transfer.

How could capital gains tax change in the autumn budget?

It has been rumoured that Rachel Reeves is considering raising capital gains tax to fill the budget black hole.

The levy could be brought into level with income tax (up to 45%), or they could axe the CGT exemption for spouses, as this is often used in family tax-planning arrangements.

They could also reduce the £3000 annual CGT allowance, or abolish it completely.