Capital gains tax basics: how profits on investments are taxed

Capital gains tax is a tax on the profit you make when you sell, or otherwise dispose of, something that has gone up in value: shares, funds, cryptocurrency, a second property or a valuable item. You are taxed on the gain, not on the sale price, and most systems give you a tax-free allowance or lower rates than on earned income. The details are country-specific and change often, so this guide explains the mechanics, labels every figure with its country and tax year, and shows how the UK capital gains tax calculator turns them into an estimate. It is general information, not tax advice.

What counts as a gain

A gain arises when you dispose of an asset for more than it cost you. Selling is the obvious case, but giving something away or swapping it can count too, usually valued at market value. Swapping one cryptocurrency for another is generally a disposal in both the UK and the US, which surprises many people. Nothing is taxed while you simply hold an asset that has risen in value; the gain is realised only when you dispose of it. If you want to see the profit before thinking about tax, the stock profit calculator and the crypto profit calculator work that out first.

Cost basis and allowable costs

The gain is the sale proceeds minus your cost basis: what you paid, plus costs of buying and selling. Broker fees, legal fees and, for property, stamp duty and the cost of improvements (not repairs) usually count. Fees reduce the gain, so keeping records matters. If you bought the same share several times at different prices, there are rules for which purchase you are treated as selling; the UK pools shares into an average cost, while the US lets you identify specific lots or defaults to first in, first out. A record of every purchase date and price makes all of this possible later.

How it works in the UK (2025/26)

For the 2025/26 tax year, UK capital gains tax works like this:

• Each individual has an annual exempt amount of £3,000 of gains.
• The taxable gain is added on top of your taxable income. The part that fits into your unused basic rate band (£37,700 above the personal allowance) is taxed at 18%, and the rest at 24%. Since 30 October 2024 these rates apply to property and other assets alike.
• Business Asset Disposal Relief, for qualifying sales of a business, charged 14% in 2025/26 and 18% from April 2026.

A worked example: you sell shares for £45,000 that cost £25,000, and earn a £40,000 salary. The gain is £20,000; after the £3,000 allowance, £17,000 is taxable. Your taxable income is £40,000 − £12,570 = £27,430, which leaves £10,270 of basic rate band. So £10,270 is taxed at 18% (£1,848.60) and £6,730 at 24% (£1,615.20), a total of £3,463.80.

How it works in the US

The US federal system splits gains by holding period. Assets held for one year or less produce short-term gains, taxed at your ordinary income rates. Assets held for more than one year produce long-term gains, taxed at 0%, 15% or 20% depending on your taxable income and filing status, with the thresholds adjusted each year. Higher earners may also owe the 3.8% net investment income tax, and most states tax capital gains as ordinary income. Holding an asset a few days longer to cross the one-year mark can change the rate significantly, which is why the purchase date matters as much as the price.

Losses, exemptions and reporting

Losses on other disposals reduce your gains. In the UK, losses are set against gains in the same year and unused losses can be carried forward if you report them to HMRC. In the US, net capital losses can offset up to $3,000 of ordinary income a year ($1,500 if married filing separately), with the rest carried forward. Common exemptions include your main home (UK private residence relief; in the US, up to $250,000 of gain, or $500,000 for married couples filing jointly, on a qualifying main home), and investments held inside ISAs, pensions or US retirement accounts. UK residential property gains must be reported and the tax paid within 60 days of completion.

Using the calculator

The calculator follows the UK steps above: proceeds minus cost and allowable costs, minus losses and the £3,000 allowance, then 18% within your remaining basic rate band and 24% above, or a flat 14% if you tick Business Asset Disposal Relief. It uses 2025/26 figures, so for a sale after 5 April 2026 check GOV.UK for the current year's rates. It does not handle share pooling, Scottish income tax bands (which do not change CGT bands anyway) or relief claims. Dividends from the same shares are taxed separately; How dividends are taxed: allowances, bands and rates explains how, and the UK income tax calculator shows how much of your basic rate band your salary uses.