9 Critical Scenarios When Capital Gains Tax Could Impact Your Finances

Many taxpayers are caught off guard by Capital Gains Tax (CGT), often discovering it applies to them only after they have completed a transaction.

While most people associate CGT with property sales, this tax applies to a much wider range of scenarios that affect everyday financial decisions.

CGT is far more commonly applied than ever, as the annual exempt amount of £3,000 (the amount of capital you can gain without tax) is the lowest in many, many years.

Understanding when CGT applies is more important than ever. Making informed decisions before selling assets, restructuring investments, or even giving gifts to family members can save you thousands in unnecessary tax.

Let’s explore CGT and nine key scenarios when it might apply to you:

First what is Capital Gains Tax (CGT)?

CGT is a tax on the profit you make when you sell or dispose of an asset that has increased in value. Here’s how it works:

• You buy shares for £10,000
• Years later, you sell them for £25,000
• Your gain is £15,000 (the profit)
• You pay CGT on this £15,000, not the full £25,000

The tax rates depend on your income tax band and what you’re selling.

Everyone gets an Annual Exempt Amount of £3,000 (reduced from £12,300 in 2022/23), meaning you only pay CGT on gains above this threshold.

For a married couple, this means a combined exemption of £6,000 if you own assets jointly.

Here’s when you need to consider CGT:

1. Selling Valuable Personal Possessions

Many people don’t realise that selling personal items can sometimes trigger CGT liabilities. This applies to possessions worth more than £6,000 that have increased in value during your ownership.

Items that might be subject to CGT include:

• Jewellery and watches
• Antiques and collectibles
• Artwork
• Vintage cars and motorcycles
• Rare coins or stamps

Example:

• You inherited a painting valued at £8,000 ten years ago
• You sell it at auction for £15,000
• Your gain is £7,000 (minus selling costs)
• After your £3,000 annual exemption, you’d pay CGT on the remaining £4,000

However, there are important exceptions:

• Items with an expected lifespan under 50 years (“wasting assets”) are usually exempt
• Items sold for less than £6,000 are exempt (the “chattels exemption”)
• Your car (including classic cars) used privately is usually exempt
• Personal items gifted to charity are exempt

For collectors, CGT can become particularly complex if you’re selling part of a collection that might be considered a single asset. Seeking advice before selling valuable collections can help you understand your tax position.

2. Selling a Property That Isn’t Your Main Home

When you sell any property that isn’t your primary residence, CGT applies to any profit you make.

Example:

• You bought a buy-to-let flat for £150,000 in 2010
• You sell it for £250,000 in 2025
• Your gain is £100,000
• If you’re a higher-rate taxpayer, you’d pay 24% CGT on £97,000 (gain minus the £3,000 exemption) = £23,280 tax bill

This includes:

• Buy-to-let properties
• Holiday homes
• Inherited properties
• Properties you’ve lived in partially

Your main home usually qualifies for Private Residence Relief (PRR), completely exempting it from CGT. For properties you’ve lived in part-time, you might get partial relief based on your period of occupation.

You can also deduct certain costs from your gain before calculating CGT:

• Purchase and selling costs (legal fees, stamp duty, estate agent fees)
• Capital improvements (extensions, loft conversions, major renovations)
• But not regular maintenance or decorating costs

Remember that since April 2020, you must report and pay CGT on UK residential property sales within 60 days of completion – not waiting until your annual tax return.

3. Selling or Closing Your Business

When you sell or close a business, CGT can apply to multiple components of the business. Let’s break this down:

Business assets that may trigger CGT include:

• Goodwill: The intangible value of your business reputation, customer relationships, and brand. For example, if your business’s goodwill is valued at £200,000 at sale but had no value when you started, that’s a £200,000 gain.
• Property: Business premises you own. If you bought a shop for £300,000 and it’s worth £500,000 when you sell the business, that’s a £200,000 gain on just the property element.
• Equipment and machinery: While these typically depreciate, some equipment, such as classic vehicles or specialised machinery, may appreciate in value.
• Shares in the business: If you sell shares in your limited company rather than the business assets themselves, CGT applies to the increase in share value.

Example of a full business sale:

• You started a business 10 years ago with £50,000 investment
• The business is now valued at £500,000 (including goodwill, assets, property)
• Your total gain is £450,000

Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) can reduce your CGT rate to 14% (rising to 18% from April 2026) on qualifying disposals up to a lifetime limit of £1 million.

Without this relief, you’d pay at standard rates (18% or 24%). To qualify, you must:

• Have owned the business for at least two years
• Been an employee or officer of the company
• Hold at least 5% of shares and voting rights (for company disposals)

The potential tax saving is substantial – for a £450,000 gain, the difference between paying 14% (£63,000) versus 24% (£108,000) is £45,000.

4. Giving Assets to Family Members

Giving valuable assets to family members (except spouses/civil partners) counts as a disposal for CGT purposes, even when no money changes hands. HMRC treats it as if you sold the asset at market value.

Example:

• You own shares worth £50,000 that you originally bought for £20,000
• You give them to your adult child
• Even though you receive no money, you have a £30,000 gain
• CGT is calculated on this £30,000, potentially resulting in a tax bill of up to £7,200 (at 24%)

This surprises many people who don’t realise they might need to find cash to pay a tax bill on a gift. The only family transfers exempt from CGT are between spouses and civil partners.

This rule applies to various assets:

• Investment properties
• Shares and investments
• Valuable personal possessions worth over £6,000
• Business assets

Many families try to gradually transfer ownership of assets to minimise CGT liability by using the annual exemption each year rather than making one large transfer.

5. Selling or Switching Investments

When you sell investments outside tax-sheltered accounts like ISAs or pensions, CGT typically applies to any profits.

Example:

• Over years, you’ve invested £40,000 in various funds
• These investments are now worth £70,000
• If you sell everything, your gain is £30,000
• After your £3,000 exemption, you’d pay CGT on £27,000

This applies to:

• Individual shares
• Unit trusts and investment funds
• Most bonds (except UK government gilts)
• Cryptocurrencies

Many investors don’t realise that switching between funds, even within the same investment platform, can trigger CGT. For example, moving £50,000 from a UK equity fund to a global equity fund counts as a disposal of the first fund.

The matching rules for determining which shares are sold first are particularly complex:

1. Shares bought on the same day as the sale are matched first
2. Then shares bought within 30 days after the sale (the “bed and breakfasting” rule)
3. Then your “Section 104 holding” (a pool of remaining shares with an averaged cost)

This means if you’ve been buying the same shares over many years at different prices, calculating the gain can be complicated.

Smart investment strategies to manage CGT include:

• Using your annual CGT exemption each tax year
• Transferring assets to a spouse to use their exemption too
• Using losses to offset gains
• Investing through ISAs and pensions where possible (as these are CGT-exempt)

6. Inheriting and Then Selling Assets

When someone leaves you assets in their will, you don’t pay CGT at that point. However, if you later sell those inherited assets, CGT may apply on the increase in value since the person died.

Example:

• You inherit shares valued at £100,000 at the date of death (the “probate value”)
• Two years later, you sell them for £125,000
• Your gain is £25,000 (£125,000 – £100,000)
• CGT would apply to this gain, minus your annual exemption

Many beneficiaries misunderstand this and think:

• Either they have to pay CGT on everything they inherit (not true)
• Or that there’s no CGT to pay when they sell inherited assets (also not true)

The probate value becomes your acquisition cost, not the amount the deceased originally paid. This is called the “uplift on death” and can be beneficial as it wipes out gains made during the deceased’s lifetime.

Inheritance Tax might have been paid on the estate, but this doesn’t eliminate potential CGT liability if assets appreciate further after inheritance.

7. Separating or Divorcing

Relationship breakdown can have significant CGT implications when dividing assets. Recent legal changes have made the rules more flexible, but careful planning remains essential.

The current CGT rules during separation and divorce (as of April 2023):

• While married or in a civil partnership, transfers between spouses are exempt from CGT
• After separation, you can transfer assets on a no-gain/no-loss basis (without triggering CGT) for up to three years after the end of the tax year in which you permanently separate
• If transfers are made under a court order, there is no time limit—the CGT exemption applies whenever the transfer happens

Example:

• You separate permanently in January 2025
• You have until April 5, 2028, to transfer assets between yourselves without CGT consequences
• If transfers are part of a court order, you can transfer assets CGT-free even after that three-year window

This is significantly more generous than the previous rules, which only allowed CGT-free transfers until the end of the tax year of separation. However, if no agreement or transfer happens within the permitted window and no court order is in place, later transfers will trigger CGT liabilities.

For the family home, additional considerations apply if one partner moves out, as they may begin to lose Private Residence Relief on their share unless certain conditions are met.

Working with both financial and legal advisors during divorce is essential to take advantage of these extended timeframes and prevent unexpected tax bills.

8. Moving Abroad

When you leave the UK to live abroad, your CGT position changes significantly, and planning is essential.

What happens when you become non-UK resident:

• You’ll generally only pay UK CGT on UK property (both residential and commercial)
• Most other UK assets fall outside the UK tax net once you’re non-resident
• However, “temporary non-residence rules” apply if you return within 5 tax years
• Under these rules, gains made while abroad could be taxed when you return to the UK

Example:

• You move abroad in June 2025
• While abroad, you sell UK shares for a £100,000 gain
• You return to the UK in 2028 (within 5 years)
• The £100,000 gain becomes taxable in the UK when you return

From April 2026, the remittance basis of taxation (which allowed non-domiciled individuals to avoid UK tax on foreign income and gains not brought to the UK) will be abolished. This means UK residents will be taxed on worldwide income and gains regardless of domicile status.

For those planning to leave the UK permanently, there may be strategies to manage CGT before departure, such as:

• Selling assets before leaving (if you’ll be gone more than 5 years)
• Transferring assets to a spouse who will remain UK resident
• Restructuring ownership of assets

9. Using Assets for Both Business and Personal Purposes

When you use assets for both business and personal purposes, CGT calculations become more complex when you eventually sell.

Common dual-use assets include:

• Home office space: If you use part of your home exclusively for business, that portion might not qualify for Private Residence Relief when you sell. Example: If you use 20% of your home exclusively for business, when you sell your £500,000 home at a £200,000 profit, £40,000 of that gain (20%) might be subject to CGT.
• Vehicles: If you claim business expenses for a vehicle that later increases in value (like classic cars), the business-use proportion might be subject to CGT. Example: You buy a vintage Land Rover for £15,000, use it 40% for business, then sell it for £25,000. The £10,000 gain might have 40% (£4,000) subject to CGT.
• Computers and equipment: While most depreciate, some collectible or vintage equipment might gain value.

Many home-based business owners are unaware that claiming too much business use of their home can partially invalidate their main residence exemption. The key factors affecting CGT liability are:

• Whether the asset is used exclusively or partially for business
• The proportion of business use claimed
• Whether business use deductions have been claimed against income tax

For vehicles and equipment worth less than £6,000, the “chattels exemption” might apply, meaning no CGT is due regardless of business use.

Get Expert Help with Your CGT Planning

CGT rules are increasingly complex and subject to frequent changes. Without proper planning, you could face unexpected tax bills or miss opportunities to reduce your liability.

At Double Point, our chartered accountants specialise in helping individuals and business owners navigate CGT rules effectively. We can help you:

• Plan disposals strategically across tax years
• Identify available reliefs and exemptions
• Structure business sales to maximise tax efficiency
• Ensure you meet all reporting requirements, including the 60-day deadline for property disposals

Don’t risk paying more tax than necessary or facing penalties for missed deadlines. Contact Double Point today for a consultation on your specific CGT situation. We could save you thousands of pounds when disposing of valuable assets.