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Capital Gains Tax Updated 26 February 2026

Capital Gains Tax UK: How It Works and How Much You Pay

Capital Gains Tax UK: How It Works and How Much You Pay

Capital Gains Tax (CGT) is one of those taxes that most people only think about when they are about to sell something valuable. By then, it is often too late to plan. This guide explains how CGT works in the UK for the 2025/26 tax year, what you actually owe, and how to keep more of your profit legally.

What Is Capital Gains Tax?

Capital Gains Tax is a tax on the profit you make when you sell (or dispose of) an asset that has increased in value. The key word is profit — you are taxed on the gain, not the sale price.

The gain is calculated as:

Sale price minus purchase price minus allowable costs (solicitor fees, stamp duty on purchase, improvement costs) minus annual exempt amount.

Current CGT Rates for 2025/26

The rate you pay depends on two things: the type of asset and your total taxable income.

Residential Property

  • Basic rate taxpayer: 18%
  • Higher or additional rate taxpayer: 24%

Other Assets (Shares, Business Assets, etc.)

  • Basic rate taxpayer: 10%
  • Higher or additional rate taxpayer: 20%

Your gain is added on top of your taxable income. If the gain pushes you from the basic rate band into the higher rate band, you pay the lower rate on the portion within the basic rate band and the higher rate on the rest.

The Annual Exempt Amount

For 2025/26, the annual exempt amount is £3,000 per individual. This means your first £3,000 of gains in a tax year are completely tax-free.

This allowance has been cut dramatically in recent years:

  • 2022/23: £12,300
  • 2023/24: £6,000
  • 2024/25 onwards: £3,000

The reduction means far more people now pay CGT on disposals that would previously have been covered by the exemption.

What Is Exempt from CGT?

Not everything you sell triggers a CGT bill. Common exemptions include:

  • Your main home (Private Residence Relief)
  • ISA and pension investments
  • Personal possessions worth £6,000 or less (the chattels exemption)
  • Gifts to your spouse or civil partner
  • Gifts to charity
  • UK government gilts and premium bonds

How to Calculate Your CGT

  1. Work out your gain: Sale price minus purchase price minus allowable costs
  2. Deduct losses: Subtract any capital losses from the current or previous tax years
  3. Deduct the annual exempt amount: Subtract £3,000
  4. Apply the correct rate: Based on your income tax band and the asset type

Reporting and Payment Deadlines

Deadlines depend on what you sell:

  • UK residential property: Report and pay within 60 days of completion using the CGT on UK property service
  • All other assets: Report through your Self Assessment tax return by 31 January following the end of the tax year

Missing the 60-day deadline for property CGT results in penalties and interest, even if you pay the correct amount through Self Assessment later.

Reducing Your CGT Bill

There are several legitimate ways to reduce what you owe:

  • Use your full annual exempt amount each tax year — it cannot be carried forward
  • Offset capital losses against gains in the same year or carry losses forward
  • Transfer assets to a spouse before sale to use both annual exempt amounts
  • Claim all allowable costs including improvement expenditure (not maintenance)
  • Consider timing — spreading disposals across tax years to use multiple exemptions
  • Explore reliefs such as Business Asset Disposal Relief (10% rate on qualifying business disposals up to £1 million lifetime limit)

For significant gains, professional advice from a qualified accountant can pay for itself many times over.

Frequently Asked Questions

How much is Capital Gains Tax in the UK?

For 2025/26, CGT on residential property is 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers. For other assets like shares, the rates are 10% and 20% respectively. You only pay CGT on gains above your annual exempt amount of £3,000.

What is the Capital Gains Tax allowance for 2025/26?

The annual exempt amount for 2025/26 is £3,000 per individual. This means the first £3,000 of your total gains in a tax year are tax-free. This has reduced significantly from £12,300 in 2022/23.

Do I pay Capital Gains Tax on my main home?

No. Your main home is usually exempt from CGT through Private Residence Relief. However, if you have let part of it out, used it for business, or it has very large grounds, some of the gain may be taxable.

When do I need to report Capital Gains Tax?

For UK residential property disposals, you must report and pay within 60 days of completion. For other assets, you report through your Self Assessment tax return by 31 January following the end of the tax year.

Can I reduce my Capital Gains Tax bill?

Yes. You can deduct allowable costs such as purchase price, improvement costs, and selling fees. You can also use your annual exempt amount, offset capital losses, and in some cases transfer assets to a spouse or civil partner. An accountant can advise on more complex tax planning strategies.