Capital gains tax is the tax you may owe when you sell something for more than you paid for it. For UK investors and traders that usually means shares, funds, property other than your main home, and some trading products. It is one of the least glamorous parts of trading, but getting it wrong can turn a decent year into an expensive one, and it is a regular target in Budgets.
This guide explains the basics. It is general education, not tax advice, and rules change, so always check the current position on GOV.UK or with a qualified adviser.
How capital gains tax works
The gain is broadly the difference between what you sold an asset for and what you paid, after allowable costs such as dealing fees. Your gains and losses across a tax year, which runs from 6 April to 5 April, are added together. You can deduct losses from gains, and unused losses can usually be carried forward if you report them to HMRC.
Everyone has an annual exempt amount, a slice of gains that is tax-free each year. It was cut sharply in recent years, falling to £3,000 from April 2024, so far more ordinary investors now find themselves paying. Above that allowance, the rate you pay depends on your income, with higher-rate taxpayers paying more. Rates have changed several times recently, which is exactly why they are worth checking each year.
How different trading products are treated
This is where traders need to pay attention, because the product you use can change the tax treatment completely.
Shares and funds held in an ordinary dealing account are normally subject to capital gains tax, with dividends taxed separately. Investments held inside an ISA are sheltered, so gains and dividends inside the wrapper are tax-free. Pensions are also sheltered, though money is taxed differently when it comes out.
Contracts for difference, or CFDs, are generally treated as within the scope of capital gains tax for individuals, which means gains can be taxable but losses can usually be offset. Financial spread betting is, for most UK individuals, currently free of capital gains tax and stamp duty, but that also means losses cannot be offset. Our guide to spread betting versus CFDs explains the trade-off in more detail. If trading is your main source of income, HMRC may view it differently again, which is another reason to take advice.
Why the Budget matters
Capital gains tax is often discussed before Budgets because it raises money mainly from people with savings and investments. Changes to rates, allowances or the treatment of particular assets can affect how investors behave, sometimes prompting selling before a change takes effect. With the Chancellor’s Budget due on Wednesday 28 October, it is worth watching the Red Book for any changes. Our Morning Market Brief covers the wider backdrop.
Practical habits for traders
Keep a simple record of every trade, including dates, prices and costs. A good trading journal does double duty here. Use your ISA allowance where it makes sense, because gains inside it never need reporting. Report losses so they can be used later. And never let tax be the only reason for a trade. Holding a losing position or selling a good one purely for tax reasons is a common mistake.
The bottom line
Capital gains tax applies to many of the profits traders make, and the rules depend heavily on the product and account you use. Understanding the basics, keeping good records and checking the current rules each year will save you money and stress.
If you want to find out how you handle decisions like this, and where your own trading could improve, the free Samuel & Co Trading Trader Assessment is a sensible next step.
