Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. It applies to a wide range of assets including second properties, shares, cryptocurrency, and personal possessions worth more than £6,000. Understanding CGT is essential for anyone looking to manage their wealth tax-efficiently.
CGT Rates for 2025/26
CGT rates in the UK depend on your Income Tax band and the type of asset you are selling:
| Asset type | Basic-rate taxpayer | Higher/Additional-rate taxpayer |
|---|---|---|
| Most assets (shares, funds, crypto, personal possessions) | 10% | 20% |
| Residential property (not your main home) | 18% | 24% |
Your CGT rate is determined by adding your taxable gain to your taxable income. If the combined total keeps you within the basic-rate band (up to £50,270 for 2025/26), you pay the lower rate. If it pushes you into the higher-rate band, the portion above the threshold is taxed at the higher rate.
Annual Exempt Amount
For the 2025/26 tax year, every individual has a CGT annual exempt amount of £3,000. This means the first £3,000 of your total capital gains in the tax year is tax-free. Only gains above this threshold are taxed.
The annual exempt amount has fallen significantly in recent years — it was £12,300 as recently as 2022/23 — making tax-efficient investing more important than ever.
What Is Exempt from CGT?
Several important exemptions exist:
- Your main home — Private Residence Relief (PPR) means gains on the sale of your primary residence are normally tax-free.
- ISAs — All gains within an ISA wrapper are completely exempt from CGT. This is a major reason to use your ISA allowance each year.
- Pensions — Investments within a pension scheme are exempt from CGT.
- Gifts to your spouse or civil partner — Transfers between spouses occur at no gain/no loss, meaning no CGT is triggered at the point of transfer.
- Gifts to charity — Donations of assets to charity are exempt.
- Personal possessions — Individual items sold for £6,000 or less are exempt (known as the chattels exemption).
- Government gilts and premium bonds — Always exempt from CGT.
How to Calculate Your Gain
The basic CGT calculation is:
Taxable gain = Proceeds − Original cost − Allowable expenses − Annual exempt amount
Allowable expenses include:
- The original purchase price (or probate value if inherited)
- Buying and selling costs (e.g. stamp duty, solicitor fees, broker commissions)
- Costs of improvement (but not maintenance or repairs)
For example, if you bought shares for £15,000, paid £50 in dealing fees, and sold them for £25,000 with £50 in selling fees:
- Gain = £25,000 − £15,000 − £100 = £9,900
- Taxable gain = £9,900 − £3,000 (annual exempt amount) = £6,900
- CGT at 10% (basic-rate taxpayer) = £690
Strategies to Reduce Your CGT Bill
There are several legitimate ways to reduce or defer CGT:
Use Your Annual Exempt Amount Every Year
The £3,000 allowance cannot be carried forward. If you have significant gains building up, consider selling a portion of your assets each year to crystallise gains within the annual exempt amount — effectively locking in profits tax-free.
Transfer Assets to Your Spouse
Transfers between spouses are CGT-free. If one partner has unused allowances or is in a lower tax band, transferring assets before sale can reduce the overall CGT bill. Both partners get their own £3,000 annual exempt amount, giving a couple £6,000 per year.
Use ISAs and Pensions
The most effective long-term CGT strategy is to hold investments inside tax-efficient wrappers in the first place. Gains within an ISA or pension are completely exempt from CGT. If you hold investments outside an ISA, consider a Bed and ISA strategy — selling assets in your general account and immediately rebuying them inside your ISA.
Offset Capital Losses
If you have made a loss on one asset sale, you can offset it against gains in the same tax year. Unused losses can be carried forward indefinitely to offset future gains. Always report losses to HMRC within four years.
Plan the Timing of Sales
If selling an asset would push you into the higher-rate tax band, consider splitting the sale across two tax years to use two annual exempt amounts and potentially stay within the basic-rate band.
Reporting CGT to HMRC
How and when you report CGT depends on the type of asset:
- Residential property — You must report and pay CGT to HMRC within 60 days of completion using the UK property disposal service. This applies even if you file a Self Assessment tax return.
- Other assets — Report gains through your annual Self Assessment tax return by 31 January following the end of the tax year.
If your total proceeds from all disposals exceed four times the annual exempt amount, you may need to report via Self Assessment even if no tax is due.
Keeping accurate records of purchase prices, costs, and disposal proceeds is essential. You must retain these records for at least five years after the Self Assessment filing deadline.