Capital Gains Tax (CGT) is charged on the profit you make when you sell or dispose of an asset that has increased in value. Not every gain is taxed, however — every UK resident has an Annual Exempt Amount that shelters a portion of gains from tax each year. In 2025-26, that exemption is £3,000.
This guide explains how CGT and the annual exemption work, the current rates, and how to calculate how much you actually owe.
What Is the Annual Exempt Amount?
The Annual Exempt Amount (AEA) is a tax-free allowance for capital gains. The first £3,000 of net capital gains in a tax year is free of CGT. Gains above this threshold are taxed at the applicable rate.
The AEA has been cut significantly in recent years — from £12,300 in 2022-23 to £6,000 in 2023-24, £3,000 in 2024-25, and maintained at £3,000 for 2025-26. As a result, far more investors now have a CGT liability than previously.
Rules for the Annual Exemption
- The AEA cannot be carried forward — if you do not use it, it is lost.
- The AEA cannot be transferred between spouses (though married couples and civil partners can transfer assets between themselves at no gain to make use of each other’s allowance).
- Losses must be deducted from gains before the AEA is applied.
CGT Rates in 2025-26
Standard Assets (Shares, Funds, and Other Investments)
From 30 October 2024, CGT rates on most assets increased:
| Taxpayer | Rate |
|---|---|
| Basic rate taxpayer | 18% |
| Higher or additional rate taxpayer | 24% |
Previously, basic rate taxpayers paid 10% and higher rate taxpayers paid 20%. The new rates apply to disposals made on or after 30 October 2024, including throughout 2025-26.
Residential Property
CGT on residential property (that does not qualify for Private Residence Relief) is charged at:
| Taxpayer | Rate |
|---|---|
| Basic rate taxpayer | 18% |
| Higher or additional rate taxpayer | 24% |
From October 2024, residential property CGT rates were reduced — they had previously been 18%/28%. Both asset classes now share the same 18%/24% rates.
Business Asset Disposal Relief (BADR)
Gains on qualifying business assets (such as shares in a personal company or a business you have run for at least two years) may attract Business Asset Disposal Relief, which reduces the rate to 14% for 2025-26 (rising to 18% from April 2026). There is a lifetime limit of £1 million of qualifying gains.
Which Rate Applies to You?
Your CGT rate depends on your total taxable income in the year of disposal, not on a separate allowance. Capital gains are treated as the “top slice” of income.
If you are a basic rate taxpayer: Gains up to the remaining basic rate band (£50,270 minus your income) are taxed at 18%. Gains above that threshold are taxed at 24%.
If you are already a higher or additional rate taxpayer: All gains are taxed at 24%.
Worked Example
Suppose you are a basic rate taxpayer with a salary of £30,000 and you sell shares in 2025-26, realising a gain of £15,000.
Step 1: Apply the Annual Exempt Amount
Taxable gain = £15,000 − £3,000 = £12,000
Step 2: Determine which rate band applies
Your taxable income is £30,000. The higher rate threshold is £50,270. Remaining basic rate band = £50,270 − £30,000 = £20,270.
Your taxable gain of £12,000 is less than £20,270, so all of it falls in the basic rate band.
Step 3: Calculate CGT
CGT = £12,000 × 18% = £2,160
If you were a higher rate taxpayer (salary of £60,000):
CGT = £12,000 × 24% = £2,880
Bed and ISA: Using the Annual Exemption
Because the AEA is “use it or lose it”, many investors use a strategy called Bed and ISA at the end of each tax year. This involves selling assets outside an ISA (to crystallise gains up to the AEA), then immediately repurchasing the same assets inside an ISA.
Benefits:
- Gains up to £3,000 are sheltered by the AEA each year.
- Future gains and income on those assets grow within the ISA tax-free.
- Over time, you can shift a substantial portfolio into a tax-efficient wrapper.
Be aware: you cannot buy back the exact same shares within 30 days in a non-ISA account (the “Bed and Breakfast” anti-avoidance rule). Buying within an ISA is fine.
Offsetting Losses
Capital losses can be used to reduce gains in the same tax year. If your losses exceed your gains, you can carry the unused losses forward to future tax years — indefinitely. Losses must be reported to HMRC within four years of the tax year they arose.
Example: You realise a £10,000 gain on shares and a £4,000 loss on other shares. Net gain = £6,000. After the AEA (£3,000), taxable gain = £3,000.
You cannot use losses to reduce gains below the AEA level in the current year — if net gains are already below £3,000, excess losses are carried forward unchanged.
Assets Exempt From CGT
Not everything is subject to CGT. Key exemptions include:
- Investments held in an ISA or pension
- Your main home (subject to Private Residence Relief)
- Premium Bonds and NS&I savings certificates
- Personal possessions (chattels) worth under £6,000
- UK government gilts (gilt-edged securities)
- Lottery and betting winnings
Reporting and Paying CGT
If you have sold a UK residential property, you must report and pay CGT within 60 days of completion using HMRC’s online service.
For other assets, CGT is reported through Self Assessment. The deadline to report and pay for 2025-26 is 31 January 2027.
If your gains are below the AEA and you have no other Self Assessment obligations, you may not need to file a return. However, gains exceeding four times the AEA (£12,000) must be reported even if tax is nil after losses.
Key Takeaways
- The Annual Exempt Amount is £3,000 for 2025-26 — the first £3,000 of net gains is free of CGT.
- CGT rates are 18% (basic rate) and 24% (higher rate) for both standard assets and residential property.
- Gains are the “top slice” of income: your tax rate depends on your remaining basic rate band.
- On a £15,000 gain with a £30,000 salary, CGT is £2,160 after the AEA.
- Use the annual exemption each year via Bed and ISA to progressively shelter your portfolio.
Use the capital gains tax calculator to work out your CGT liability for any disposal.