Capital Gains Tax (CGT)

GOV.UK's guidance leads with the point that most often confuses people about this tax: 'Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that's increased in value. It's the gain you make that's taxed, not the amount of money you receive.' The guidance gives a simple illustration — buying a painting for £5,000 and selling it for £25,000 produces a taxable gain of £20,000, not a taxable receipt of £25,000.

'Disposing of' an asset is defined more broadly than simply selling it for cash. The guidance confirms that disposing of an asset includes 'selling it', 'giving it away as a gift, or transferring it to someone else', and 'swapping it for something else' — so a gift or a barter transaction can trigger a Capital Gains Tax liability just as a sale can, even though no money changes hands in the same way. Not every gain is taxable, however: some assets are entirely tax-free, and gains within the annual tax-free allowance are not taxed at all.