It has been reported that UK Chancellor Rachel Reeves is considering an increase in capital gains tax to help raise funds for public services.

The government could raise this by as much as 39% - something that would affect the 350,000 people across Britain who pay it.

However, with so much talk around this potential change, you may be wondering what capital gains tax is.

What is capital gains tax and how does it work?

Capital gains tax is paid on profits made from the sale of non-inventory items like second homes, bonds and shares.

According to the UK Government website, those liable to pay the tax are granted an annual tax-free allowance or exempt amount.

This means you only pay capital gains tax if your overall gains for the tax year (after deducting any losses and applying any reliefs) are above this.

The annual exemption amount is £3000 for individuals, personal representatives and trustees for disabled people and £1500 for other trustees.

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What are the capital gains tax rates in the UK?

These are the capital gains tax rates in the UK for the 2024/2025 tax year, according to the UK Government.

It states that the rates paid are dependent on a person's total taxable income, so this should be worked out first.

  • 10% and 20% for individuals (not including residential property gains and carried interest gains)
  • 18% and 24% for individuals for residential property gains
  • 18% and 28% for individuals for carried interest gains
  • 20% for trustees (not including residential property gains)
  • 24% for trustees for residential property gains
  • 20% for personal representatives of someone who has died (not including residential property gains and carried interest gains)
  • 24% for personal representatives of someone who has died for residential property gains
  • 28% for personal representatives of someone who has died for carried interest gains
  • 10% for gains qualifying for Business Asset Disposal Relief

Capital gains tax is a tax paid on profits from the sale of non-inventory items like second homes.