Understanding Capital Gains Tax (CGT) in the UK
Capital Gains Tax (CGT) is the tax you pay on the profit (or gain) when you sell or dispose of an asset that has increased in value. It is not the total sale price that is taxed — only the gain above what you originally paid. Understanding CGT is essential for anyone selling property, shares, or a business.
What Triggers CGT?
CGT arises when you dispose of a chargeable asset. Disposal includes selling, giving away, exchanging, or receiving compensation for an asset. Chargeable assets include shares and securities (not held in an ISA), investment property, land, business assets, and high-value personal possessions (chattels) worth more than £6,000. Your main home is usually exempt under Private Residence Relief.
CGT Rates for 2025/26
The rates that apply depend on the type of asset and your overall income level. For most assets (shares, business assets): basic rate taxpayers pay 18%; higher and additional rate taxpayers pay 24%. For residential property (other than your main home): basic rate taxpayers pay 18%; higher and additional rate taxpayers pay 24%. Note that CGT rates on residential property were reduced in the October 2024 Autumn Budget from 28% to 24% for higher rate taxpayers.
The Annual Exempt Amount
Every individual has an Annual Exempt Amount (AEA) — gains below this threshold are not taxed. For 2025/26 the AEA is £3,000. This is significantly reduced from £12,300 in 2022/23, meaning careful planning is now more important than ever. Married couples and civil partners each have their own AEA.
Working Out Your Gain
The basic calculation is: disposal proceeds minus allowable costs equals your gain. Allowable costs include the original purchase price, buying and selling costs (legal fees, stamp duty, agent's fees), and enhancement expenditure (capital improvements to the asset). For assets acquired before April 1998, indexation allowance may also apply.
Reporting and Paying CGT
For residential property disposals, you must report and pay CGT within 60 days of completion using HMRC's online service for property gains. For other assets, CGT is reported through your Self-Assessment tax return and paid by 31 January following the tax year. If you are not registered for Self-Assessment, you must still report gains exceeding the AEA.
CGT on Shares
When selling shares, the calculation must account for the same-day rule, the 30-day bed-and-breakfast rule, and the section 104 pool for shares of the same class. These rules prevent people from selling and immediately repurchasing shares to crystallise gains within the AEA each year.
Reducing Your CGT Bill
Transfer assets to a spouse before sale: transfers between spouses are exempt from CGT, so you can double the effective annual exemption and potentially benefit from a lower rate if one spouse is a basic rate taxpayer. Use the AEA every year by realising gains annually rather than in a single large disposal. Invest through ISAs so future gains are sheltered. Use capital losses to offset gains — losses in the same year must be offset first; remaining losses are carried forward indefinitely.
Business Asset Disposal Relief
Formerly Entrepreneurs' Relief, Business Asset Disposal Relief (BADR) reduces CGT to 10% on qualifying business disposals up to a lifetime limit of £1 million. It applies to sole traders, business partners, and company shareholders (with at least 5% shareholding) who have owned the business for at least 2 years.
