You might pay 20% Income Tax, but that doesn’t necessarily mean you’ll pay Capital Gains Tax at 18%.
We’ve had two conversations with clients this week which highlighted a very common misunderstanding about Capital Gains Tax (CGT).
Both clients were basic rate taxpayers for Income Tax and both assumed that, because they paid Income Tax at 20%, any capital gains they made would automatically be taxed at the lower CGT rate of 18%.
Unfortunately, it isn’t quite that simple!
In fact, depending on the size of your gain, you could find yourself paying Capital Gains Tax at 24%, even though your normal income is comfortably within the basic rate tax band.
What is Capital Gains Tax?
Capital Gains Tax is the tax you may pay when you sell or dispose of an asset that has increased in value.
For example, this might include:
- A second property or buy-to-let investment
- Shares or other investments held outside an ISA
- Land that you own
- Certain valuable personal possessions
Importantly, CGT is generally charged on the profit you make, not the total amount you receive when you sell the asset.
There are also various exemptions and reliefs which may reduce the amount of tax payable.
What are the Capital Gains Tax rates?
For the 2026/27 tax year, the standard CGT rates for individuals are:
- 18% on gains falling within your unused basic rate Income Tax band.
- 24% on gains falling above that band.
There is also an annual CGT exemption of £3,000, meaning most individuals can make up to £3,000 of net taxable gains in the tax year without paying CGT.
Certain gains, including those qualifying for Business Asset Disposal Relief, are subject to special rules.
Here’s where the confusion arises
Many people assume that their normal Income Tax rate determines the rate of Capital Gains Tax they will pay.
But that’s not how it works.
When calculating your CGT liability, HMRC looks at your taxable income for the year and then adds your taxable capital gains.
The amount of your gain that fits within your remaining basic rate tax band is charged at 18%.
Anything above that is generally charged at 24%.
So a large capital gain can use up your remaining basic rate band, even if you have never paid higher rate Income Tax before.
Let’s look at an example
Imagine Sarah earns a salary of £35,000 a year.
She’s a basic rate taxpayer and has never paid higher rate Income Tax.
She decides to sell some shares that she has owned for several years, making a capital gain of £50,000.
Sarah assumes she’ll pay 18% Capital Gains Tax because she’s a basic rate taxpayer.
But let’s see what actually happens.
Sarah’s Capital Gains Tax calculation
| Description | Amount |
| Annual salary | £35,000 |
| Less Personal Allowance | (£12,570) |
| Taxable income | £22,430 |
| Basic rate tax band | £37,700 |
| Remaining basic rate band | £15,270 |
| Capital gain | £50,000 |
| Less annual CGT exemption | (£3,000) |
| Taxable capital gain | £47,000 |
Sarah has £15,270 of her basic rate band remaining.
This means:
| Capital Gains Tax calculation | Tax |
| £15,270 at 18% | £2,748.60 |
| £31,730 at 24% | £7,615.20 |
| Total CGT payable | £10,363.80 |
If Sarah had simply calculated 18% on her £47,000 taxable gain, she would have expected a tax bill of £8,460.
That’s an unexpected extra £1,903.80 in Capital Gains Tax!
And all because she assumed that being a basic rate taxpayer meant all her gains would be taxed at 18%.
Does this mean your salary will also be taxed at 40%?
No, and this is another important distinction.
Although your capital gain can push you into the higher CGT rate, it doesn’t mean your salary suddenly becomes subject to higher rate Income Tax.
Your income is taxed under the normal Income Tax rules.
The capital gain is then considered when deciding which CGT rates apply.
In other words, your gain can be taxed at 24% without you actually paying 40% Income Tax on your salary.
Can you do anything to reduce the Capital Gains Tax?
Potentially, yes.
Depending on your circumstances, there may be opportunities to reduce the tax payable, including:
- Making use of your annual CGT exemption.
- Consider whether any allowable capital losses can be offset against your gains.
- Reviewing the timing of disposals, particularly if your income varies between tax years.
- Considering transfers between spouses or civil partners, where appropriate.
- Checking whether any specific CGT reliefs are available.
However, the important thing is to consider these options before selling the asset, rather than after the transaction has taken place.
Once an asset has been sold, your tax-planning options may be much more limited.
Don’t forget the payment deadlines
If you’re selling a UK residential property on which Capital Gains Tax is payable, you will normally need to report the disposal and pay the CGT within 60 days of completion.
For many other gains, the tax is reported through your Self Assessment tax return, with payment generally due by 31 January following the end of the relevant tax year.
Missing these deadlines can result in penalties and interest.
Our advice: Check before you sell
The message from our two client conversations this week is simple.
Just because you’re a basic rate taxpayer doesn’t mean all your capital gains will be taxed at 18%.
A substantial gain could mean that most, or even all, of your taxable profit is subject to the higher 24% rate.
And that’s something you really want to know before you commit to selling an asset.
At DNA Accountants, we can help you calculate your likely Capital Gains Tax liability, explain the rules and consider whether there are legitimate ways to reduce your tax bill.
If you’re thinking of selling a property, shares or another valuable asset, please get in touch before you sell.
This article is based on the UK Capital Gains Tax rules for the 2026/27 tax year. It provides general guidance only. Individual circumstances, available reliefs and the type of asset disposed of can affect the tax payable.