Capital Gains Tax Explained: A Practical UK Guide
By calculatemysalary.co.uk Editorial Team
How Capital Gains Tax works in the UK for 2025/26, including the simplified rate structure, the reduced annual exemption, and practical ways to pay less.
Sell an asset for more than you paid for it, and HMRC wants a slice. That's Capital Gains Tax. It applies to shares, investment property, cryptocurrency, valuable personal possessions, and business assets.
The system changed from April 2025. Rates are now simpler (one set of rates for everything), but the annual exemption has shrunk to just £3,000. If you're selling anything significant, you need to understand where you stand.
What gets taxed
CGT applies when you dispose of (sell, gift, or swap) an asset that has increased in value. You're taxed on the gain, not the total sale price.
Gain = sale price - purchase price - allowable costs
Allowable costs include things like stamp duty when you bought the asset, solicitor fees, and the cost of improvements (but not maintenance or repairs).
Assets that attract CGT:
- Second homes and buy-to-let property
- Shares and funds held outside an ISA or pension
- Cryptocurrency
- Valuable personal items worth over £6,000 (art, jewellery, antiques)
- Business assets
Assets that are exempt:
- Your main home (principal private residence relief)
- ISA and pension investments
- Personal possessions worth under £6,000
- UK government gilts
- Gains on death (the estate may face IHT instead)
Rates for 2025/26
From April 2025, the separate residential property rates were scrapped. All chargeable assets now use the same rates:
| Your income tax band | CGT rate |
|---|---|
| Basic rate (up to £50,270) | 18% |
| Higher or additional rate | 24% |
There's a wrinkle: if your taxable income plus your gain straddles the basic-rate threshold, part of the gain is taxed at 18% and the rest at 24%.
Annual exempt amount
Everyone gets a £3,000 tax-free allowance per tax year. This has dropped sharply: it was £12,300 as recently as 2022/23. Couples can each use their own allowance, giving £6,000 combined.
Unused allowance can't be carried forward. Use it or lose it.
When and how to report
Property disposals: Report and pay within 60 days of completion using HMRC's online CGT service. Miss this and you'll face penalties and interest on top of the tax.
Other assets: Report on your Self Assessment tax return by 31 January following the end of the tax year.
If your total gains are within the £3,000 exemption, you don't need to report (unless you need to register losses for future use).
How to reduce your CGT bill
1. Use your annual exemption
£3,000 isn't much, but it's free. If you're planning to sell a large holding, consider spreading sales across tax years. Selling £20,000 of shares in March and another £20,000 in April means you've used two years' worth of exemption.
2. Transfer assets to your spouse
Transfers between spouses and civil partners are CGT-free. If one of you pays a lower rate of tax, transferring assets before selling can reduce the rate from 24% to 18%. You also get two annual exemptions (£6,000 total).
This needs to be a genuine transfer. HMRC can challenge arrangements that look like they exist purely for tax avoidance.
3. Offset losses against gains
If you sell an asset at a loss, you can offset that loss against gains in the same tax year. Unused losses can be carried forward indefinitely.
Say you made a £15,000 gain on shares but a £4,000 loss on another investment. Your net gain is £11,000. After the £3,000 exemption, you pay CGT on £8,000.
4. Hold investments in ISAs and pensions
This is the big one. Investments inside an ISA or pension are completely exempt from CGT. The ISA allowance is £20,000/year. If you're investing outside a tax wrapper and then paying CGT on the gains, you're leaving money on the table.
If you already hold investments outside an ISA, you can sell and repurchase within your ISA (known as "Bed and ISA"), using your annual exemption and ISA allowance together.
5. Deduct allowable costs
Reduce your taxable gain by claiming legitimate expenses:
- Stamp duty or stamp duty reserve tax paid on purchase
- Legal and professional fees (solicitor, surveyor, estate agent)
- Cost of improvements to the asset (a loft conversion on a rental property, for instance)
Keep receipts. HMRC expects documentation.
Business Asset Disposal Relief (BADR)
If you're selling all or part of a qualifying business, you may pay just 10% on the first £1 million of lifetime gains. There are conditions around ownership period and stake size, so check the GOV.UK guidance on BADR.
Worked example: selling a rental property
You bought a flat for £200,000, spent £10,000 on a new kitchen and bathroom, and sold it for £280,000. You paid £3,000 in estate agent and solicitor fees.
| Item | Amount |
|---|---|
| Sale price | £280,000 |
| Less: purchase price | -£200,000 |
| Less: improvements | -£10,000 |
| Less: selling costs | -£3,000 |
| Total gain | £67,000 |
| Less: annual exemption | -£3,000 |
| Taxable gain | £64,000 |
If you're a basic-rate taxpayer with enough room in the basic-rate band:
- CGT at 18%: £64,000 x 18% = £11,520
If you're a higher-rate taxpayer:
- CGT at 24%: £64,000 x 24% = £15,360
Remember: property sales must be reported and paid within 60 days. Don't wait for your Self Assessment.
Useful links
- CGT rates and allowances: gov.uk/capital-gains-tax
- Report and pay CGT on property: gov.uk/report-and-pay-capital-gains-tax
- ISAs and CGT exemption: MoneyHelper
- See your full salary breakdown: salary calculator