Capital Gains Tax Explained
Tax on the profit when you sell or dispose of an asset that has increased in value. The annual exempt amount for 2025-26 is just £3,000, down from £12,300 two years ago.
What is Capital Gains Tax?
Capital Gains Tax (CGT) applies when you sell, gift or otherwise dispose of an asset for more than you paid for it. The "gain" is the difference between the purchase price and the sale price, minus any allowable costs like legal fees or improvement costs.
CGT does not apply to your main home (which is covered by Private Residence Relief), assets held in an ISA, or personal possessions worth under £6,000.
How it works
For 2025-26, you have an annual exempt amount of £3,000. Gains below this threshold are tax-free. Above it, the rate depends on your total taxable income and the type of asset:
| Asset type | Basic rate | Higher rate |
|---|---|---|
| Residential property | 18% | 24% |
| Shares, funds, other assets | 10% | 20% |
Your gains are added on top of your income. If the combined total pushes you into the higher rate band (above £50,270), the portion of the gain in that band is taxed at the higher CGT rate. Residential property gains must be reported to HMRC within 60 days of completion.
Real example
Claire earns £40,000 salary and sells shares for a £15,000 profit. After deducting the £3,000 annual exemption, her taxable gain is £12,000.
Her income uses £27,430 of the basic rate band (£50,270 minus £12,570 minus £10,270 remaining). The first £10,270 of the gain falls in the basic rate band at 10% (£1,027). The remaining £1,730 is taxed at 20% (£346).
Total CGT: £1,373. Had the same gain been on a buy-to-let property, the rates would be 18% and 24%, costing £2,264 in total.
Who does this affect?
Anyone who sells assets at a profit above the £3,000 annual exemption. Common triggers include selling a buy-to-let or second property, selling shares or investments outside an ISA, selling a business or business assets, and gifting high-value items to anyone other than a spouse. Transfers between spouses and civil partners are CGT-free.
HMRC source
gov.uk/capital-gains-tax covers what you pay CGT on, current rates and how to report gains.
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