Capital Gains Tax

What Is Capital Gains Tax and When Do You Pay It in the UK?

Publisher

• 3 min read
What Is Capital Gains Tax and When Do You Pay It in the UK?

Introduction to Capital Gains Tax

Capital Gains Tax (CGT) is a tax paid on the profit you make when you sell (or "dispose of") an asset that has increased in value. You pay it on the gain — the difference between what you received for the asset and what you paid for it (and any allowable costs) — not on the total sale proceeds. CGT is charged by HMRC and applies to UK residents on assets disposed of anywhere in the world.

What Assets Are Subject to CGT?

CGT applies to a wide range of assets:

  • Shares and other securities (held outside an ISA)
  • Investment funds outside an ISA
  • Property that is not your main home (buy-to-let, second homes, inherited property)
  • Business assets and company interests
  • Cryptocurrency
  • Valuable personal possessions worth over £6,000 (art, jewellery, antiques — though some relief applies)

Assets exempt from CGT include:

  • Your main home (Principal Private Residence relief)
  • Assets held in an ISA
  • Pension assets
  • Gilts (UK government bonds)
  • Premium Bond prizes
  • Personal possessions worth up to £6,000
  • Gifts between spouses or civil partners

CGT Rates in 2025/26

Following changes in the October 2024 Autumn Budget, CGT rates increased:

  • Shares and investments: 18% (basic rate taxpayers) or 24% (higher and additional rate taxpayers)
  • Residential property (non-main home): 18% (basic rate) or 24% (higher rate)
  • Business assets (Investor's Relief, Business Asset Disposal Relief): 14% rising to 18% from April 2026

The rate that applies depends on whether the gain falls within the basic rate band when added to your other income. Gains that push you into the higher rate band are taxed at the higher rate on that portion.

The Annual CGT Allowance

Each tax year, every individual has a CGT annual exemption — a tax-free amount of gains. In 2025/26, this is £3,000 (reduced from £6,000 in 2024/25 and £12,300 in 2022/23). Only gains above this threshold are taxable.

The reduction in the annual allowance from £12,300 to £3,000 over two years has brought significantly more investors into the CGT net, particularly those selling shares outside ISAs or disposing of property.

Key CGT Concepts

Allowable Costs

When calculating your gain, you can deduct the original purchase cost plus allowable costs: transaction fees, stamp duty paid on acquisition, solicitor's fees, and improvement costs (for property). You cannot deduct maintenance costs for property.

Losses

Capital losses can be offset against capital gains in the same tax year, reducing your taxable gain. Losses not used in the current year can be carried forward to future years. You must register unused losses with HMRC (through Self Assessment) to preserve the right to use them.

Bed and ISA

Investors can move shares from a general investment account into a Stocks and Shares ISA by selling in the account and buying within the ISA (subject to the annual ISA allowance). This realises the gain (which may be within the annual allowance) and shelters future growth and income from all future tax. This strategy, known as "bed and ISA," is legal and commonly used to shelter accumulated gains from future tax.

Principal Private Residence Relief

Your main home is generally exempt from CGT when you sell it, provided you've lived in it as your main residence throughout ownership. If you've had periods of letting or have a garden over half a hectare, partial relief may apply. Get specialist advice if your situation is complex.

When Do You Need to Report and Pay CGT?

Property

If you sell UK residential property and make a taxable gain, you must report and pay the tax within 60 days of completion using HMRC's online UK Property Reporting Service. This applies to non-residents too.

Other Assets

Gains on other assets (shares, business assets, etc.) are reported through Self Assessment — by 31 January following the end of the tax year in which the disposal occurred. Tax is due on the same date.

CGT Planning Strategies

  • Use your annual allowance: Realise gains up to £3,000 per year where possible — use it or lose it
  • Transfer assets to a spouse/civil partner: Transfers between spouses are CGT-free, effectively doubling the combined annual allowance
  • Invest within ISAs: All gains and income within an ISA are permanently CGT and income tax free
  • Maximise pension contributions: Pension contributions can extend the basic rate band, meaning more gains fall within the lower CGT rate
  • Claim losses: Ensure all capital losses (including cryptoasset losses) are reported and preserved

Conclusion

CGT is a complex area of UK taxation with significant implications for investors, property owners, and business owners. The reduction in the annual allowance has made planning more important than ever. The core strategy for most UK investors is to hold as much as possible within ISAs and pensions (permanently sheltering gains), use the annual allowance strategically via bed-and-ISA transactions, and take professional advice for significant disposals — particularly property sales involving partial reliefs or complex ownership structures.