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Capital Gains Tax Explained — Rates, Allowances and How to Reduce Your Bill

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Capital Gains Tax (CGT) is charged on the profit you make when you sell or dispose of an asset that has increased in value. It's not the full sale price that's taxed — only the gain. Understanding the rates, exemptions and reliefs available can save you a significant amount, particularly if you hold investments, a second property or business assets.

What is a capital gain?

A capital gain arises when you dispose of an asset for more than you paid for it. "Dispose of" means selling, gifting, swapping, or receiving compensation for an asset. The gain is the difference between what you received (the proceeds) and what you originally paid (the base cost), minus any allowable costs such as buying and selling fees or improvement costs.

Example: You buy shares for £8,000 and later sell them for £15,000. Your gain is £7,000 minus any dealing fees.

What assets does CGT apply to?

CGT applies to a wide range of assets, including:

• Shares and funds held outside an ISA or pension
• Residential property that is not your main home (second homes, buy-to-let)
• Cryptoassets (Bitcoin, Ethereum and similar)
• Business assets
• Valuable personal possessions (chattels) sold for more than £6,000
• Foreign currency held as an investment

What is exempt from CGT?

Several assets and disposals are completely outside the scope of CGT:

• Your main home (subject to Private Residence Relief — see below)
• Assets held inside a Stocks and Shares ISA or pension
• Gifts between spouses and civil partners
• Donations to UK-registered charities
• Personal cars (even if they increase in value)
• Personal possessions sold for £6,000 or less
• UK government gilts (bonds)
• Premium Bond and lottery prizes
• Foreign currency for personal spending abroad

CGT rates 2026/27

CGT rates depend on whether you are a basic rate or higher/additional rate taxpayer. Your taxable income determines which band applies — gains are treated as sitting on top of your income.

Following the Autumn 2024 Budget, rates were increased from 30 October 2024. The residential property and non-property rates are now aligned:

Taxpayer band	Rate on most assets	Rate on residential property
Basic rate (income up to £50,270)	18%	18%
Higher or additional rate (income above £50,270)	24%	24%

The annual exempt amount

Every individual has an annual CGT allowance — the annual exempt amount — below which gains are tax-free. For 2026/27 this is £3,000. This allowance cannot be carried forward to future years; if you don't use it, you lose it.

The allowance has been drastically cut in recent years — it was £12,300 as recently as 2022/23 — so strategic timing of disposals has become more important than ever.

How to calculate your CGT bill

1. Add up all capital gains in the tax year
2. Deduct any capital losses from the same year (or losses carried forward from previous years)
3. Deduct the annual exempt amount (£3,000)
4. Add the remaining gain to your taxable income to determine which rate(s) apply
5. Apply 18% to gains within the basic rate band, 24% to gains above it

Example: You earn £38,000 (taxable income after personal allowance: £25,430) and make a £20,000 gain on shares. After the £3,000 annual exempt amount, your taxable gain is £17,000. The basic rate band goes up to £50,270, so you have £50,270 − £38,000 = £12,270 of basic rate band remaining. The first £12,270 of the gain is taxed at 18% (= £2,209) and the remaining £4,730 at 24% (= £1,135). Total CGT: £3,344.

Private Residence Relief — selling your home

If you sell your only or main home, Private Residence Relief (PRR) exempts the entire gain from CGT, provided the property has been your main residence for the whole period you owned it. The final 9 months of ownership always qualify for relief even if you've moved out — useful when there's a gap between moving and completing a sale.

CGT does apply if you sell:

• A second home or holiday property
• A buy-to-let investment property
• A property you've never lived in
• A property you've lived in for only part of your ownership period (partial relief applies)

CGT on shares — the matching rules

For shares in the same company, HMRC uses specific matching rules to determine the base cost when you sell part of a holding:

1. Shares bought on the same day as the sale are matched first
2. Shares bought within the next 30 days are matched next (the "bed and breakfast" rule — this prevents you selling and immediately rebuying to crystallise a loss)
3. Remaining shares are matched to the Section 104 pool — an average cost pool of all other shares in that company

Capital losses

If you dispose of an asset at a loss, that loss can be offset against gains in the same tax year, reducing your CGT bill. If losses exceed gains in a year, the surplus can be carried forward indefinitely and used against gains in future years. Losses must be reported to HMRC — they are not applied automatically.

You can only use carried-forward losses after reducing gains to the annual exempt amount. In other words, you can't use old losses to push your net gains below £3,000.

Business Asset Disposal Relief

Formerly known as Entrepreneurs' Relief, Business Asset Disposal Relief (BADR) provides a reduced CGT rate on qualifying business disposals — such as selling your own trading company, a business partnership interest, or shares acquired through an Enterprise Management Incentive (EMI) scheme.

Following the Autumn 2024 Budget, the BADR rate is being phased up:

Tax year	BADR rate
2024/25	10%
2025/26	14%
2026/27 onwards	18%

The lifetime limit is £1 million of qualifying gains. To qualify, you must have owned at least 5% of the company's shares and voting rights for at least 2 years before disposal, among other conditions.

CGT and gifts

Giving an asset away is treated as a disposal at market value — even if you receive nothing in return. This means CGT can arise on gifts to family members, friends or trusts. There are important exceptions:

• Spouse/civil partner: Transfers are made at "no gain, no loss" — no CGT arises, but the recipient inherits your original base cost and will pay CGT on the full gain when they later dispose of the asset.
• Charity: Gifts to UK-registered charities are exempt from CGT.
• Hold-over relief: For gifts of business assets or assets into certain trusts, CGT can be deferred — the gain is "held over" and only crystallises when the recipient eventually sells.

Cryptoassets and CGT

HMRC treats cryptoassets (Bitcoin, Ethereum, NFTs and similar) as capital assets, not currency. Every time you sell, swap, spend or gift crypto, a disposal occurs and CGT may be due. The same annual exempt amount and rates apply. HMRC uses pooling rules similar to shares for calculating the base cost of cryptocurrency holdings. Detailed records of every transaction — date, amount in GBP, fees — are essential.

How to reduce your CGT bill legally

1. Use your ISA allowance

Gains on investments held inside a Stocks and Shares ISA are completely free of CGT. The annual ISA allowance is £20,000. Once you have gains sheltered inside an ISA, they are permanently outside the CGT net.

2. Bed and ISA / Bed and SIPP

"Bed and ISA" means selling investments held outside an ISA and rebuying the same investments inside one. The sale crystallises a gain (or loss), but all future growth is sheltered. This is particularly effective when gains are within or close to the annual exempt amount. A similar strategy applies for SIPPs (pensions).

3. Use your annual exempt amount every year

The £3,000 annual exempt amount cannot be carried forward. If you have unrealised gains, consider realising up to £3,000 worth each year to gradually reduce a large potential CGT liability over time.

4. Transfer assets to a spouse or civil partner

Transfers between spouses and civil partners are CGT-free. Shifting assets to a lower-earning partner before disposal can mean more of the gain falls in the basic rate band (18% rather than 24%), and the couple gets two annual exempt amounts (£6,000 combined).

5. Crystallise losses before the tax year ends

If you hold assets sitting at a loss, selling them before 5 April creates a capital loss you can offset against gains in the same year. You can then rebuy after 30 days (the bed-and-breakfast waiting period) if you still want the exposure, or rebuy immediately inside an ISA.

6. Pension contributions

Making a pension contribution extends the basic rate band, which can bring a gain that would otherwise be taxed at 24% back down into the 18% band. For a £10,000 gain taxed at 24%, moving it to 18% saves £600.

When and how to report CGT

Asset type	Reporting method	Deadline
UK residential property (chargeable gain)	Report and pay via HMRC's online service	Within 60 days of completion
Shares, crypto, other assets	Self Assessment tax return	31 January following the tax year end

You must report gains via Self Assessment even if no tax is due (for example, gains above £3,000 that are fully covered by losses). Keep records of every acquisition and disposal for at least 5 years after the 31 January deadline for the relevant tax year.