Capital Gains Tax (CGT) applies when you sell or dispose of an asset for more than you paid for it. Unlike Income Tax, CGT is not deducted at source—you must report and pay it yourself. Understanding the rates, allowances, and exceptions can significantly reduce what you owe.

CGT at a Glance (2025/26)

Asset Type	Basic Rate Taxpayer	Higher/Additional Rate Taxpayer
Residential property	18%	24%
Other assets (shares, funds, business assets)	10%	20%
Business Asset Disposal Relief (BADR)	10% (lifetime limit £1m)	10% (lifetime limit £1m)
Annual Exempt Amount	£3,000	£3,000

The Annual Exempt Amount (AEA) has been cut significantly from £12,300 in 2022/23. Only the first £3,000 of net gains in any tax year is free of CGT.

What Triggers a Capital Gains Event

A “disposal” includes:

Selling an asset
Giving an asset away (you’re treated as selling at market value)
Swapping one asset for another
Receiving compensation for an asset (e.g., insurance payout after loss)

What does NOT trigger CGT:

Assets within an ISA or pension
Transfers between spouses or civil partners (no gain/no loss)
UK government gilts
Personal possessions worth less than £6,000 (chattels exemption)
Your main home (usually—see below)

Private Residence Relief (PRR): Your Main Home

Gains on your main residence are exempt under PRR if the property was your only or main residence for the entire ownership period. The final 9 months of ownership always qualifies, even if you’ve moved out.

Scenario	CGT Applies?
Sold your only home, lived there throughout	No
Sold second home or buy-to-let	Yes
Let out part of your main home (Rent a Room)	Partial relief available
Main home for part of ownership, rented rest of time	Proportional relief
Property transferred to spouse	No (no gain/no loss rule)

Calculating Your Gain

Step 1: Determine proceeds (sale price, or market value for gifts) Step 2: Deduct allowable costs:

Original purchase price
Stamp Duty Land Tax paid on purchase
Legal and estate agency fees on purchase and sale
Capital improvement costs (not maintenance or repairs)

Step 3: Deduct losses from the same tax year Step 4: Deduct the Annual Exempt Amount (£3,000) Step 5: Apply the correct CGT rate based on your income tax band

Example:

Sold shares for £28,000, bought for £18,000
Dealing costs: £400 total
Net gain: £28,000 − £18,000 − £400 = £9,600
Less AEA: £9,600 − £3,000 = £6,600 taxable
Basic rate taxpayer: 10% × £6,600 = £660 CGT

Decision Framework: When to Realise Gains

Situation	Strategy
Gain under £3,000	Sell—no CGT due, use your AEA
Approaching AEA limit with more to sell	Split disposals across two tax years
Higher rate taxpayer with large gain	Consider BADR eligibility if business asset
Shares held inside ISA	No CGT—sell freely
Shares held outside ISA	Consider Bed and ISA each year
Married/civil partner	Transfer to spouse to use their AEA and lower rate
Capital loss available	Realise loss in same year to offset gains

Bed and ISA: Using Your Annual ISA Allowance to Shelter Gains

“Bed and ISA” means selling assets outside an ISA and immediately repurchasing them inside a Stocks and Shares ISA. Future gains and income are then sheltered from tax. You crystallise a gain (or loss) on the sale, but all future growth is CGT-free.

You can move up to £20,000 per tax year into an ISA. Over 5–10 years, systematic Bed and ISA transfers can shelter hundreds of thousands in future gains.

Reporting and Payment Deadlines

Asset Type	Reporting Deadline	Payment Deadline
UK residential property	60 days after completion	60 days after completion
All other assets	By 31 January following the tax year end	By 31 January following the tax year end

The 60-day reporting requirement for residential property is strict and applies even if no tax is due (e.g., PRR covers the full gain). Report via HMRC’s Real Time Capital Gains Reporting service online.

Enterprise Investment Scheme (EIS) and CGT

The Enterprise Investment Scheme and Seed EIS provide additional CGT reliefs for qualifying investments:

Relief	EIS	SEIS
CGT Deferral	Defer gains of any size by reinvesting in EIS shares within 3 years	Not available
CGT Exemption on disposal	Gains on EIS shares held 3+ years are 0% CGT	Gains on SEIS shares held 3+ years are 0% CGT
Loss Relief	EIS losses can be set against income tax (not just CGT)	Same
Risk	High—qualifying companies are small and early-stage	Very high—seed stage

EIS deferral relief does not eliminate the gain—it suspends it until the EIS shares are sold. But if used strategically, it can shift a large gain into future tax years when rates may be lower, or into a period after death where the held-over gain dies with the investor.

CGT for Non-UK Residents

Non-UK residents are not subject to UK CGT on most assets—but UK residential property is an exception. Since April 2015, non-residents must pay CGT on gains from UK residential property, and since April 2019, this extends to all UK property and land (including commercial).

Non-resident vendors must still file the 60-day report after selling UK property, regardless of whether tax is due.

Record-Keeping Requirements

HMRC requires you to keep records of:

Purchase date and cost including all allowable expenses
Sale date and proceeds
Any improvements made (with receipts)
Correspondence relating to any gifts or transfers at market value

Records must be kept for at least 5 years after the 31 January filing deadline for the relevant tax year (so up to 5 years 10 months from the tax year end in practice).

Loss Relief and Carry Forward

Capital losses can be:

Set against gains in the same tax year (mandatory)
Carried forward indefinitely against future gains
Cannot be set against income (except for certain EIS/SEIS investments)

Losses from previous years must be used before the AEA is applied. This means large carry-forward losses effectively waste your annual exempt amount.

Strategy: If you have substantial carry-forward losses, consider realising larger gains to use them up while rates are relatively predictable.

Frequently Asked Questions

Do I need to report CGT if my gain is under £3,000? Not normally—if your total gains are under the AEA and your total proceeds are under £50,000. Above £50,000 in proceeds, you must report even if the net gain is zero or below the AEA.

What rate of CGT do I pay? It depends on your total taxable income plus the gain. If the gain (added to income) stays within the basic rate band (£50,270 for 2025/26), you pay 10% on shares/funds or 18% on residential property. Any portion above that pays 20% or 24%.

Can my spouse and I both use the Annual Exempt Amount? Yes. Transfers between spouses carry no gain, so you can transfer an asset to your spouse, who then sells it using their own £3,000 AEA. If they are a basic rate taxpayer, they also pay a lower CGT rate.

What is Business Asset Disposal Relief? BADR (formerly Entrepreneurs’ Relief) taxes qualifying business disposals at 10% regardless of income tax band, up to a lifetime limit of £1 million. Qualifying conditions include owning at least 5% of the company for 2 years and being an employee or director.

How is CGT different from Inheritance Tax? CGT applies when you sell or give away assets during your lifetime. IHT applies on death. Assets left to heirs get a “rebased” cost for CGT purposes—so any pre-death gain disappears for CGT, though IHT may still apply to the estate.

When do I have to pay CGT on a property sale? Within 60 days of completion. Miss this deadline and a surcharge applies: 5% after 30 days late, additional 5% penalties after 6 and 12 months. Interest also accrues from the due date.

Can I offset mortgage interest against a buy-to-let capital gain? No. Mortgage interest is only relevant for Income Tax (rental profits), not for the capital gain calculation. You can only deduct purchase costs, improvement costs, and disposal costs.

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Related: Dividend Tax | UK Tax Filing | ISA Basics

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

Reviewed by WealthVieu