What Counts as a Capital Gain and What Does Not

Capital Gains Tax is one of those areas of UK tax that appears simple on the surface although the rules underneath are far more detailed. Many people assume that any profit they make is a capital gain although that is not always true. Other people assume that certain transactions are taxable when they are not. In my opinion understanding the difference between what counts as a capital gain and what does not is an essential part of managing your personal finances because it helps you plan ahead and avoid unexpected tax bills.

This guide explains exactly what HMRC considers a capital gain, which events trigger Capital Gains Tax, which assets are included, what exemptions apply, which profits are taxed under different regimes and which transactions do not count as capital gains at all. I will also include practical examples because they make the rules much easier to understand.

By the end of this guide you will have a clear understanding of what is and is not a capital gain in the UK tax system.

What a Capital Gain Actually Is

A capital gain is the profit you make when you dispose of an asset that has increased in value. Disposal does not just mean selling. It includes:

Selling an asset
Giving it away
Swapping it
Transferring it to someone other than your spouse
Receiving compensation for it
Transferring it into a trust

A capital gain occurs when:

Your disposal proceeds
minus
Your allowable costs
equals
A profit

You pay Capital Gains Tax only on the gain not on the total amount you receive.

In my opinion this basic formula is the starting point for everything and once you understand it the rest becomes much clearer.

What HMRC Counts as a Capital Gain

To count as a capital gain the event must involve a chargeable disposal of a chargeable asset. Here are the key categories.

1. Selling an investment for more than it cost

This is the classic capital gain. Examples include:

Selling shares
Selling a rental property
Selling land
Selling crypto assets
Selling antiques or art with a gain

2. Giving away assets (except to a spouse)

Gifting an asset is still a disposal. HMRC uses the market value to calculate the gain.

Example:
If you give your child shares worth £10,000 that you bought for £2,000 you have an £8,000 gain.

3. Transferring assets into a trust

This is treated as a disposal at market value.

4. Selling part of an asset

For example:

Selling part of your land
Selling part of a large holding of shares
Selling an interest in a property

5. Receiving compensation or insurance payouts for destroyed or damaged assets

If you receive payment that exceeds the asset’s value you may have a gain.

Example:
Insurance payout exceeds cost of asset
Compensation for compulsory purchase orders

6. Disposal of business assets

Such as:

Machinery
Business premises
Shares in your own company
Goodwill

These attract special reliefs but still count as capital gains.

What Assets Are Subject to Capital Gains Tax

CGT applies to most capital assets including:

Property that is not your main residence
Second homes
Buy to let properties
Bitcoin and other cryptoassets
Shares outside an ISA or pension
Company shares
Investments
Land and plots
Antiques
Collections
Artwork
Valuable jewellery depending on type
Business assets
Intellectual property

If it can increase in value and it is not explicitly exempt it is usually subject to CGT.

What Does NOT Count as a Capital Gain

Not all profits or disposals are subject to Capital Gains Tax. Some are taxed differently and others are not taxed at all.

In my opinion this is the area that confuses people most because the exemptions are varied and sometimes surprising.

1. Your main home (most of the time)

If it is your only or main residence you usually get full Private Residence Relief.

CGT does NOT apply to:

The main home you live in
Most normal use of your home
Garden land up to half a hectare
The final 9 months of ownership

CGT can apply if:

You let out part of the home
You used it for business
You moved out long before selling
It is unusually large

2. Assets inside an ISA or pension

No CGT is due on:

ISA investments
Lifetime ISA investments
SIPP investments
Workplace pensions

This is why ISAs and pensions are used heavily for tax planning.

3. Cars

Private cars are exempt even if sold for a profit.

This includes:

Everyday cars
Classic cars
Electric cars
Vintage vehicles

4. Winnings and prizes

CGT does not apply to:

Lottery wins
Premium Bond prizes
Gambling winnings
Competitions

5. Personal belongings sold for less than £6,000

Chattels worth under £6,000 are exempt.
For assets over £6,000 special rules apply.

6. Transfers between spouses and civil partners

Transfers occur on a no gain no loss basis.
There is no CGT on the transfer.

7. Income taxed elsewhere

Some gains are not classed as capital gains because they are taxed as income instead.

These include:

Interest
Dividends
Rental income
Trading profits
Income from side businesses
Salary
Bonuses

These are taxed under Income Tax rules not CGT.

8. Company shares when they are part of employee share schemes

Some schemes such as SIP are exempt unless specific conditions apply.

9. Wasting assets

These are assets with a useful life under 50 years such as:

Boats
Caravans
Racehorses
Certain antiques

Unless used for business purposes they are usually exempt.

10. Gifts to charity

These do not trigger CGT because the disposal is exempt.

Grey Areas: Situations People Often Misunderstand

There are several cases where people wrongly assume CGT applies or does not apply.

1. Inheritance

Receiving an inheritance is NOT a capital gain
Selling an inherited asset later CAN be a capital gain

2. Selling your home when it has been a rental

If your home was once rented out you may owe CGT for that period.

3. Cryptocurrency

Crypto is treated as a capital asset
Buying and selling crypto usually results in a capital gain

4. Selling personal items worth more than £6,000

Some belongings such as artwork or jewellery CAN attract CGT.

5. Business assets used personally

Assets used partly for business and partly privately may need apportionment.

6. Gains on foreign property

These are still subject to UK CGT if you are UK resident.

In my opinion foreign properties and crypto are the areas where people accidentally break the rules simply because they do not check how CGT applies.

Real World Examples of What Counts as a Capital Gain

Example 1: Selling shares

Bought for £5,000
Sold for £12,000
Gain = £7,000
Taxable unless inside an ISA

Example 2: Selling a buy to let

Bought for £150,000
Sold for £240,000
Gain = £90,000
Taxable with property CGT rules

Example 3: Transferring crypto to someone else

This counts as a disposal at market value.

Example 4: Selling artwork for £10,000

Gain is taxable because the asset is worth over £6,000.

Example 5: Receiving an inheritance

Not taxable as CGT
You may owe CGT if you sell the asset later at a gain

Real World Examples of What Does NOT Count as a Capital Gain

Example 1: Selling your main home

No CGT if fully covered by Private Residence Relief.

Example 2: Selling your personal car

Cars are exempt even if rare or valuable.

Example 3: Receiving rental income

This is taxable as income not capital.

Example 4: Selling items worth under £6,000

No CGT on individual chattels below this limit.

Example 5: Selling investments inside an ISA

Fully exempt.

Example 6: Gifts to your spouse

No capital gain arises on the transfer.

How to Know Whether CGT Applies to Your Situation

Ask yourself three questions.

1. Is the asset something that can appreciate in value?

If yes CGT may apply.

2. Are you disposing of it in some form?

Sale
Gift
Transfer
Swap
Loss claim
Destruction with compensation

If yes disposal rules apply.

3. Is there a specific exemption?

Main home
Cars
ISA
Pension
Assets under £6,000
Spousal transfers
Charity transfers

If yes CGT may not apply.

If you cannot find an exemption it is almost certainly a chargeable gain.

Why Knowing This Matters

Understanding what counts as a capital gain helps you:

Plan for tax
Use your annual CGT allowance
Avoid penalties for not reporting
Structure asset ownership correctly
Use spousal transfers to reduce gains
Decide where to hold investments
Avoid mixing capital and income categories

In my opinion CGT becomes far less intimidating once you understand what HMRC considers a gain.

Conclusion

A capital gain arises when you dispose of a chargeable asset for more than it cost you. This includes selling property, cryptoassets, shares and many personal assets worth more than £6,000. It also includes gifting assets to anyone other than your spouse. However many transactions do not count as capital gains at all such as selling your main home, selling a car, receiving income, gains inside an ISA or pension, or transferring assets between spouses.

In my opinion the key to managing Capital Gains Tax confidently is understanding whether your asset is chargeable and whether the disposal falls within one of the many exemptions. Once you know which side of the line your situation falls on you can plan ahead, structure your transactions efficiently and avoid unnecessary tax.