Capital Gains Tax (CGT)
Plain-English definition of Capital Gains Tax (CGT) — part of our UK tax glossary.
Definition
CGT is the UK tax on profit when you sell assets (shares, second properties, crypto). The annual CGT allowance (£3,000 in 2024/25) allows a small amount of gains tax-free each year. ISA and pension wrappers fully shelter gains from CGT.
Worked example
Selling £15,000 of gains from a taxable trading account, you pay CGT on £12,000 (after the £3,000 allowance). At the 10% basic-rate gains rate that is £1,200; at 20% higher-rate it is £2,400. Inside an ISA, the same gain is £0 tax.
Why it matters
UK tax thresholds are full of cliff edges — the 60% trap between £100k and £125k, the FTB stamp duty relief above £625k, child benefit tapers — and the marginal rate you actually face at any given moment is rarely the headline number. Knowing the vocabulary lets you run the right calculation before a bonus, a house move, or a pension contribution.
Common mistake
Treating tax bands as averages rather than marginal rates. An extra pound of gross salary in the 40% band costs 42% at the margin (tax + NI), and inside the £100k taper it effectively costs 60%. The average tax rate on the payslip is not what you will pay on the next pound.
Calculators that use this concept
See also
- National Insurance (NI) — National Insurance is a UK tax funding state pensions and certain benefits. Employees pay 8% on earnings betwe…
- Personal Allowance — The Personal Allowance is the amount of income you can earn each tax year before paying UK income tax — curren…
- Marginal Tax Rate — Your marginal tax rate is the rate you pay on the next pound you earn — not the average rate you pay overall. …
- Salary Sacrifice — An arrangement where you give up part of your gross salary in exchange for a non-cash benefit (usually pension…