Capital Gains Tax explained

A quick summary

Capital Gains Tax (often called CGT) is a tax you may need to pay when you sell, gift or exchange something that’s gone up in value since you got it.

What is Capital Gains Tax?

Capital Gains is the profit you make when something you own goes up in value. You only pay tax on the gain, not the full amount you receive from selling it.​

You’ll usually pay Capital Gains Tax when you dispose of things like:​

  • personal items worth £6,000 or more (not including your car unless it’s used for business)​
  • property you own, such as buy‑to‑let homes or business property​
  • shares or investment funds held outside an ISA or pension
  • business assets, including land, equipment or trademarks.

Capital Gains Tax allowance

Each tax year you get a Capital Gains Tax allowance, sometimes called the annual exempt amount (AEA).​

If your total gains for the year are below the allowance, you won’t normally pay Capital Gains Tax. If they’re over the allowance, you’ll only pay tax on the amount above it.​

Allowance for 2025/2026

  • £3,000 for individuals​.
  • £1,500 for trusts​.

You can’t carry over unused allowance, so it’s worth making the most of it each year. You can find out about Capital Gains Tax on the GOV.UK website.

Capital Gains Tax rates for 2025/26 and 2026/27

The amount of Capital Gains Tax you pay depends on your income tax band.​

If your income and gains keep you within the basic‑rate band, your rate is usually 18%.​

If they push you into the higher or additional‑rate band, the rate increases to 24% on the amount above the basic‑rate threshold.​

Source: GOV.UK website

Paying your Capital Gains Tax (CGT)

  • To calculate your Capital Gains Tax, you’ll need to know:​

    • what the asset was worth when you bought or received it​
    • what it was worth when you sold or disposed of it​
    • your Capital Gains Tax allowance​
    • your income tax band.

    Steps to calculate CGT

    • Work out your gain (sale value minus original value)​.
    • Subtract your allowance​.
    • Apply the rate that matches your tax band​.
    Example​

    If you made a £10,000 gain:​

    • £3,000 is covered by your allowance​
    • £7,000 is taxable​.

    Basic‑rate taxpayer: 18% = £1,260​.

    Higher/additional‑rate taxpayer: 24% = £1,680.

  • For example, if you sold an investment in May 2025, you’d need to report it by 31 January 2027.​

    You’ll usually report and pay Capital Gains Tax through HMRC’s online service, or​ your self‑assessment tax return​.

    Capital Gains Tax on property​

    The rules are different for residential property. If you sell a UK home or other residential property, you’ll normally need to report and pay CGT within 60 days of completion.

  • Once you report your gain, HMRC will give you a Capital Gains payment reference (a 14‑character code starting with "X").​

    You can then pay by:​

    • bank transfer
    • cheque.

  • You may not pay UK Capital Gains Tax if you’re not a UK resident, unless:​

    • you return to the UK within 5 years, or​
    • you sell shares in a UK property‑rich company​.

    In these cases, CGT may still apply.

  • Some assets are tax‑efficient and may reduce or remove Capital Gains Tax.

    • ISAs. There is no CGT on ISA investments​.
    • Pensions. Pension investments aren’t subject to CGT.
    • UK gilts and premium bonds​.
    • Betting and lottery winnings.
    • Gifts to a spouse, civil partner or charity.
    • Inheritance. CGT normally only applies if you later sell the inherited asset.

  • You may be able to reduce your bill by​:

    • transferring assets to a spouse or civil partner​
    • using tax‑efficient investments like ISAs or pensions​
    • increasing pension contributions​
    • donating to charity​
    • reporting capital losses to offset gains.

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Investing for the long term (5 years or more) increases the likelihood of positive returns, compared with cash savings. But investments can go down as well as up, and you could get back less than you put in. Tax treatment depends on individual circumstances and may change.

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