The capital gains tax (CGT) annual exemption — the amount of gains you can realise each year without paying tax — has been dramatically reduced over the past three tax years. At £3,000 for 2025-26, it is less than a quarter of what it was in 2022-23. For investors with assets held outside tax-efficient wrappers, this reduction significantly increases the potential CGT bill.
The Exemption Through the Years
| Tax year | Annual CGT exemption |
|---|---|
| 2022-23 | £12,300 |
| 2023-24 | £6,000 |
| 2024-25 | £3,000 |
| 2025-26 | £3,000 |
The exemption was halved in 2023-24 and halved again in 2024-25, where it has now been held. Even with no further cuts, the current £3,000 allowance is so small that most investors with meaningful portfolio gains will now face a CGT bill when they sell investments outside a tax-free wrapper.
CGT Rates for 2025-26
The rates at which you pay CGT depend on the type of asset and whether you are a basic or higher rate taxpayer.
Residential Property
- 18% for basic rate taxpayers
- 24% for higher and additional rate taxpayers
Other Assets (Shares, Funds, Business Assets, etc.)
- 18% for basic rate taxpayers
- 24% for higher and additional rate taxpayers
Note: Prior to the Autumn 2024 Budget, the rates for non-property assets were 10% (basic) and 20% (higher). The October 2024 Budget increased these rates, broadly aligning them with property CGT rates.
Business Asset Disposal Relief (BADR)
Formerly known as Entrepreneurs’ Relief, BADR offers a reduced 14% rate on qualifying business disposals (up to a lifetime limit of £1 million). The rate was 10% before October 2024. If you are selling a business, specific advice from a tax professional is strongly recommended.
Calculating Your CGT Liability
CGT is charged on your net gain — the sale proceeds minus the original cost (and allowable expenses such as acquisition costs, improvement costs, and disposal costs). From this net gain, you deduct the £3,000 annual exemption. Tax is then charged on the remainder at the appropriate rate.
Your CGT rate depends on how much of your basic rate band (which runs from £12,570 to £50,270 in 2025-26) is already used up by your income. Any gains that fall within your unused basic rate band are taxed at the lower rate; the rest at the higher rate.
Example
A basic rate taxpayer earns £40,000 from employment (PAYE). In 2025-26, they sell shares held outside an ISA, realising a gain of £15,000.
- Annual exemption: £3,000
- Taxable gain: £12,000
- Remaining basic rate band: £50,270 − £40,000 = £10,270
- Gains within basic rate band (£10,270): taxed at 18% = £1,849
- Gains above basic rate band (£12,000 − £10,270 = £1,730): taxed at 24% = £415
- Total CGT due: £2,264
Before 2022-23, the same gain would have been entirely covered by the £12,300 annual exemption and no CGT would be due at all.
Who Is Most Affected?
Individual Investors With GIA Accounts
Anyone with a General Investment Account (GIA) — essentially a standard investment account outside an ISA or pension — is exposed to CGT when they sell shares, funds, or other investments at a profit. With the exemption at £3,000, even modest rebalancing or drawdown can trigger a CGT bill.
Property Investors
Landlords selling rental properties face CGT at 18% or 24% on gains above £3,000 (above the annual exemption). For properties that have appreciated significantly, CGT bills can be substantial. Note that the gain on your main home is usually exempt from CGT under private residence relief.
Business Owners and Entrepreneurs
Business disposals can generate large capital gains. Understanding which relief applies (BADR, investors’ relief, etc.) is critical before any sale.
Couples
A key point that is often overlooked: each individual has their own £3,000 annual exemption. A married couple or civil partners can effectively use a combined £6,000 of gains tax-free. Spouses can transfer assets to each other free of CGT at any time, allowing you to use both exemptions when selling investments.
Strategies to Reduce Your CGT Bill
1. Use Your ISA Allowance First
The most straightforward way to avoid CGT is to hold investments inside a Stocks and Shares ISA. Gains on ISA investments are completely free of CGT, regardless of how large they are. The annual ISA allowance is £20,000 per person.
If you have investments in a GIA that have grown substantially, you could consider a “Bed and ISA” strategy: sell the investment in the GIA (crystallising the gain and potentially using your annual exemption), then immediately repurchase within an ISA. Future gains on those assets will then be sheltered. Note that the sale crystallises a gain now, so consider the timing relative to your annual exemption and tax band.
2. Maximise Pension Contributions
Pension wrappers are completely free of CGT on investment growth. Beyond sheltering future gains, increasing pension contributions also reduces your adjusted income, which can help keep you in the basic rate band — meaning any gains you do realise outside a wrapper are taxed at 18% rather than 24%.
3. Use Both Spouses’ Allowances
Transfer income-producing assets to your spouse or civil partner to use their £3,000 exemption and potentially their lower rate band. These transfers are CGT-free between spouses living together.
4. Use Losses to Offset Gains
Capital losses — where you sell an asset for less than you paid for it — can be offset against capital gains in the same tax year. Remaining losses can be carried forward indefinitely against future gains. If you hold any investments sitting at a loss, consider whether realising those losses in the same year as gains could reduce your CGT bill (known as “loss harvesting”).
5. Spread Gains Across Tax Years
If you are not in a rush to sell, consider spreading disposals across two tax years to use two years’ worth of annual exemptions (£3,000 each = £6,000 total). Sell some before 5 April and some after 6 April to achieve this.
6. Consider Enterprise Investment Scheme (EIS)
Investing through EIS qualifies for CGT deferral relief — you can defer a gain by reinvesting it into EIS shares. However, EIS investments are high-risk and illiquid, so they are not suitable for everyone.
Reporting and Paying CGT
CGT on residential property must be reported and paid within 60 days of completion using HMRC’s UK Property Reporting Service. Failing to do so incurs penalties.
CGT on other assets (shares, business disposals, etc.) is reported on your Self Assessment tax return and is due by 31 January following the end of the tax year. So CGT on gains made in 2025-26 is due by 31 January 2027.
Use our capital gains tax calculator to work out your CGT liability for 2025-26 based on your specific gains, income level, and asset type.