Capital Gains Tax in the UK: A Plain-English Guide
Capital Gains Tax (CGT) is charged when you sell or dispose of an asset that has increased in value. Many people encounter it for the first time when selling a second property, shares outside an ISA, or a business. Here's how it works and how to reduce it legally.
What is Capital Gains Tax?
CGT is charged on the profit (the "gain") you make when you sell or give away an asset that has risen in value. You don't pay tax on the full sale price, only on the increase in value above what you originally paid (your "base cost").
For example: if you bought shares for £5,000 and sold them for £18,000, your gain is £13,000. CGT is calculated on that £13,000 (less any annual allowance remaining), not the £18,000.
Assets that commonly trigger CGT
- Shares, funds and investment trusts held outside an ISA or pension
- Second homes, buy-to-let properties, and holiday lets
- Business assets (goodwill, equipment, premises)
- Valuable personal possessions worth more than £6,000 (jewellery, art, antiques)
- Cryptocurrency
The annual CGT allowance (2026/27)
Everyone has a tax-free CGT allowance each year: the amount of gains you can make before CGT is charged. For 2026/27 this is £3,000.
This is a significant reduction from recent years. The allowance was £12,300 in 2022/23, was cut to £6,000 in 2023/24, and halved again to £3,000 in 2024/25 where it currently sits. These cuts have brought many more investors and landlords into the CGT net.
Annual allowance: use it or lose it
The CGT allowance cannot be carried forward. Any unused allowance in a given tax year is lost. Couples can each realise up to £3,000 of gains tax-free (£6,000/year between them), which makes asset splitting between spouses or civil partners worth considering.
CGT rates 2026/27
The rate you pay depends on your income tax band and the type of asset. Note: residential property (that is not your main home) has higher rates than other assets.
| Your tax band | Shares / other assets | Residential property |
|---|---|---|
| Basic-rate taxpayer | 18% | 18% |
| Higher / additional rate | 24% | 24% |
Rates from 30 October 2024. Previous rates were 10%/20% on other assets and 18%/28% on residential property. The rates are applied to your total gains above the annual allowance.
How your tax band affects CGT
If your gains, when added to your income, straddle a tax band boundary, the portion that falls in the basic rate band is taxed at the lower CGT rate and the rest at the higher rate. It's your total taxable income plus gains that determines which rate applies to each slice.
What is exempt from CGT?
Several important asset types are exempt from CGT entirely:
Your main home (Private Residence Relief)
Any gain on a property that has been your main residence throughout your ownership is fully exempt. Partial relief applies if you lived there for only part of the time.
ISA and pension investments
Gains inside an ISA or pension are completely free from CGT. This is one of the strongest arguments for using these wrappers for long-term investing.
Gifts to spouses or civil partners
Transfers between married couples or civil partners are exempt from CGT (though the recipient takes on the original base cost and may face CGT when they later sell).
UK government gilts and Premium Bonds
Gains on UK government bonds (gilts) and NS&I savings products including Premium Bonds are CGT-free.
Cars
Private cars (including classic cars) are exempt from CGT, even if they appreciate significantly in value.
How to reduce your CGT bill
Use your ISA allowance first
Any gains made inside an ISA are permanently exempt from CGT. Maxing your £20,000 annual allowance, particularly in a Stocks & Shares ISA, shelters your investments from future CGT.
Bed and ISA (or Bed and SIPP)
Sell assets held outside an ISA and immediately repurchase them inside an ISA. Any gain realised on the sale is subject to CGT (up to your annual allowance), but future growth will be tax-free. You can only contribute up to £20,000 per year.
Crystallise gains gradually each year
Rather than selling all your investments at once, realise up to £3,000 of gains per year. This uses your annual allowance and avoids CGT entirely. It requires careful planning but is perfectly legal.
Offset losses against gains
Capital losses can be set off against capital gains in the same tax year, reducing the net gain on which you pay tax. Losses can also be carried forward to future years if they exceed the current year's gains.
Transfer assets to a lower-income spouse or civil partner
Transfers between spouses are CGT-free. If one partner pays no or basic-rate income tax, their gain (once transferred) would be taxed at 18% rather than 24%, and they have their own £3,000 annual allowance.
Reporting and paying CGT
How you report and pay CGT depends on the type of asset:
UK residential property
You must report and pay CGT within 60 days of completion using HMRC's online service. This applies even if no tax is due (because the gain is covered by your annual allowance or Private Residence Relief).
Shares and other assets
Report via Self Assessment by 31 January following the end of the tax year (e.g. gains in 2026/27 must be declared by 31 January 2027). You only need to report if your total gains exceed the annual allowance or total proceeds exceed four times the allowance (£12,000).