Capital gains tax UK: rates, allowance and how it works

Have you ever wondered how much of your investment or property profit actually stays in your pocket? When you sell a second home, dispose of shares, or gift an asset, Capital Gains Tax comes into play. It is a standard part of financial life in the United Kingdom, but the rules are specific. Understanding how this tax works is the best way to plan ahead and manage your money effectively. It is often beneficial to consult a specialist tax solicitor early in the process to avoid costly reporting errors.

KEY TAKEAWAYS: What is capital gains tax UK and how does it work?

Capital gains tax is a tax on the profit (the “gain”) you make when you sell or “dispose of” an asset that has increased in value. It is important to remember that it is the profit that is taxed, not the total amount of money you receive from the sale. For example, if you purchased a piece of art for £5,000 and sold it later for £25,000, your taxable gain would be £20,000.

Are you worried about how these rules might affect your next big sale? Let us dive into the details.

Chargeable assets: What do you pay capital gains tax on?

Tax applies only to “chargeable assets.” Common examples include:

• Personal possessions worth £6,000 or more (excluding cars).
• Property that is not your main home.
• Your main home if let out, used for business, or exceptionally large.
• Shares outside an ISA or PEP.
• Business assets like land or machinery.

Disposal includes selling, gifting, swapping, or receiving insurance compensation for a destroyed asset.

Every individual in the United Kingdom has an annual tax-free allowance called the Annual Exempt Amount. You only pay Capital Gains Tax on profits that exceed this limit.

For the tax year 2026 to 2027, the allowances are:

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

This allowance is lower than in previous years, meaning more people now need to report their gains. As a result, careful tax planning is essential to look for legal ways to remain within these limits.

Understanding capital gains tax rates

The Capital Gains Tax rate you pay depends on your taxable income and the amount of your taxable gain. The main rates of 18% and 24% have applied since 30 October 2024, when the rates for assets other than residential property increased to match those already applicable to residential property.

For those who qualify for Business Asset Disposal Relief, a rate of 18% applies from 6 April 2026. The relief may apply to sole traders, business partners and qualifying employee-shareholders or office holders, but it produces a tax saving only on gains that would otherwise be taxed at 24%.

How to calculate your gain: Step-by-step guide and examples

To find out what you owe, add your capital gains to your taxable income. For 2026/2027, the basic rate threshold is £37,700. For CGT calculations, Scottish and Welsh taxpayers also use the UK £37,700 basic rate band, even though Scottish Income Tax bands differ. Profits below this are taxed at 18%, and profits above are taxed at 24%.

Calculation Steps

• Deduct the £3,000 allowance from your total gain.
• Add this taxable gain to your other income.
• Apply 18% to the portion within the basic band, and 24% to the rest.

Case Study 1: Within the Basic Band

Taxable income (salary minus the £12,570 Personal Allowance): £20,000 | Share Gain: £12,600

• Taxable Gain: £12,600 – £3,000 = £9,600
• Calculation: Total stays under £37,700, so the entire gain is taxed at 18%.
• Total Tax: £1,728

Case Study 2: Crossing into the Higher Band

Taxable income (salary minus the £12,570 Personal Allowance): £20,000 | Share Gain: £52,600

• Taxable Gain: £52,600 – £3,000 = £49,600
• Basic Rate: The first £17,700 fills the basic band at 18% (£3,186).
• Higher Rate: The remaining £31,900 is taxed at 24% (£7,656).
• Total Tax: £10,842

Capital gains tax on property and shares

Property and shares are the most common sources of capital gains for United Kingdom residents.

Property

• Main Home: Usually tax-free due to Private Residence Relief.
• Other Property: Tax applies to buy-to-let investments, business premises, or inherited property that you do not live in.
• Reporting: You must use a specific “Capital Gains Tax on UK property” account to report and pay.

Shares and Crypto

• Shares: Tax applies to gains unless the shares are held in an ISA or PEP.
• Bed and ISA: A common strategy involves selling shares to use your annual allowance, then immediately repurchasing them within an ISA to protect future gains.

For more detail, see our guide to Capital Gains Tax on property and the 60-day reporting rule.

Capital gains tax relief: Business Asset Disposal Relief

If you are a business owner, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) may reduce the tax due on qualifying gains that would otherwise be charged at 24%.

Key Details

• The Rate: Qualifying gains are taxed at 18% for disposals made from 6 April 2026. The rate was 14% for disposals made between 6 April 2025 and 5 April 2026.
• Sole traders and partners: You must generally have owned the business for at least two years before disposing of all or part of it.
• Personal-company shares: For at least two years before the disposal, you must generally be an employee or office holder of the company, which must be a trading company or the holding company of a trading group. For non-EMI shares, you must normally hold at least 5% of the shares and voting rights and satisfy the separate 5% economic-interest test.
• Lifetime limit: You can claim BADR on up to £1 million of qualifying gains over your lifetime.
• Impact from 6 April 2026: The relief produces a tax saving only to the extent that the qualifying gain would otherwise be taxed at the 24% CGT rate. It does not reduce tax on a gain that would otherwise fall within the 18% rate.

Capital gains tax reporting HMRC: Deadlines and procedures

Missing reporting deadlines is a common mistake. HM Revenue and Customs does not send a bill; you must proactively report your gains.

Deadlines

• UK Residential Property: Report and pay within 60 days of completing the sale.
• Other Assets (Shares, etc.): Report via your Self Assessment tax return, or use the “real-time” service by 31 December, in the tax year after the sale.

Penalties and Record Keeping

• Penalties: Late reporting results in automatic fines and interest charges.
• Records: Keep all purchase receipts and improvement costs, as these expenses deduct from your taxable gain.

Rules for gifts, spouses, and inherited assets

The way you transfer an asset changes the tax implications.

Spouses and Civil Partners

• Tax-Free Transfers: You do not usually pay Capital Gains Tax on assets given or sold to your spouse or civil partner.
• Future Sales: If they sell the asset later, their gain is calculated using your original purchase cost.
• Tax Planning: Transferring assets to a partner who has not used their £3,000 allowance reduces the household tax bill.

Gifts to Charity

• Exemptions: Gifts to charity are entirely tax-free.
• Discounted Sales: If you sell an asset to a charity for less than market value but more than your original cost, the gain is based on the actual price the charity paid you.

Inherited Assets

• No Immediate Tax: You do not pay Capital Gains Tax immediately upon inheriting an asset; the estate handles Inheritance Tax before distribution.
• Probate value / market value at the date of death: Your acquisition value for Capital Gains Tax purposes is generally the asset’s probate value or market value at the date of death. If you later dispose of the asset, the gain is normally calculated by reference to that value.

Using losses to reduce your tax bill

Selling an asset for less than its original cost creates a loss. Allowable losses directly reduce your total taxable gains.

Rules for Using Losses

• Current Year: Deduct losses first from gains made in the same tax year.
• Previous Years: Apply older, unused losses if your remaining gains still exceed the £3,000 allowance.
• Time Limit: Claim losses up to four years after the end of the tax year of disposal.
• Family Exception: Losses on gifts to family members are generally invalid, unless offsetting a gain from a sale to that same person.

FAQs

Can I deduct costs like solicitor fees or home improvements from my gain?

Yes. You can deduct professional fees, such as solicitor or estate agent fees, paid during the purchase or sale. Capital improvement works like building an extension are also deductible if they added value, but normal maintenance costs like painting are not.

How much capital gains tax will i pay?

The amount you pay depends on your income. Basic rate taxpayers pay 18% or 24%, while higher rate taxpayers pay 24%. If your gain qualifies for Business Asset Disposal Relief, it is taxed at 18% from 6 April 2026. This produces a saving only where the gain would otherwise be taxed at 24%.

How does capital gains tax work on property?

Your main home is usually tax-free. For second homes or buy-to-let properties, you must report the gain and pay the tax within 60 days of completing the sale.

Managing capital gains on property, shares, or business assets requires careful attention to changing rules. With the tax-free allowance at £3,000, understanding chargeable assets, tracking deadlines, and using available reliefs is essential. Detailed record-keeping and professional advice ensure compliance.

This guide provides general information only and does not constitute legal advice.

Unsure about the 60-day property reporting rule or business reliefs?

Qredible connects you with specialist tax solicitors for tailored advice to protect your wealth and meet all HM Revenue and Customs obligations.

KEY TAKEAWAYS:

• Chargeable assets and rates:CGT applies to gains from assets like second homes, shares and valuable items. Rates are 18% or 24% depending on income.
• Allowance and reporting:The annual tax-free allowance is £3,000. Property gains must be reported within 60 days.
• Reliefs and losses:Reduce your bill with available reliefs or by offsetting allowable losses.