Capital Gains Tax Guide: Definition, Allowance & Rates

Capital Gains Tax (CGT) is a tax on the profit you make when you sell, give away, transfer, or otherwise dispose of an asset that has gone up in value.

If you've sold a property, some shares, or a business asset and walked away with a profit, there's a good chance Capital Gains Tax is on your to-do list.

This guide covers everything you need to know about what CGT actually is, which assets it applies to, how much you'll pay, and how to stay on top of it.

Key points

• CGT applies to more people as allowances shrink and asset values rise 📊
  Capital Gains Tax affects individuals, trustees, and estates (not companies). Even modest sales of shares, property, or crypto can trigger tax.
• Most investments are taxable, but key exemptions still exist 🏠
  CGT usually applies to shares, second properties, crypto, and valuable possessions, but exemptions include your main home (often via Private Residence Relief), ISAs, pensions (SIPPs), cars, UK gilts, and transfers between spouses.
• Your tax bill depends on income level and timing, not just the gain itself ⚖️
  Basic rate taxpayers pay 18%, and higher rate taxpayers pay 24%, based on where your total income and gains fall. Timing the sale of your assets can reduce the amount taxed at the higher rate.
• You must report CGT on different timelines depending on the asset 📅
  UK property gains must be reported and paid within 60 days, while other assets are reported via Self Assessment by 31 January after the tax year. Missing deadlines can lead to penalties.
• Planning ahead with ANNA can significantly reduce CGT 🚀
  Strategies like using your allowance yearly, offsetting losses, using ISAs, and pension contributions can reduce your bill. ANNA helps automate tracking, estimates your tax in real time, and files your Self Assessment directly to HMRC, reducing errors and stress.

Capital Gains Tax: Who does it apply to?

CGT applies to individuals, trustees, and personal representatives. Companies don't pay CGT – they pay Corporation Tax on their gains instead.

In 2024/25, Capital Gains Tax raised £13.3 billion for the UK government compared to £310 billion from Income Tax. It's a relatively small revenue source, but it affects a growing number of people as asset values rise and the tax-free allowance shrinks.

Which assets are subject to CGT?

CGT can apply to a wide range of assets.

The most common ones you're likely to come across include:

• Shares and unit trusts
• Buy-to-let or second property
• Business assets
• Cryptocurrency
• Valuable personal possessions (over £6,000)

However, not everything you own or sell is taxed by CGT. Key exemptions include:

• Your main home
• Individual Savings Accounts (ISAs)
• Self-Invested Personal Pensions (SIPPs)
• Transfers to a spouse or civil partner
• Betting, gambling, and lottery winnings
• UK government gilts
• Personal possessions worth £6,000 or less
• Personal use cars

Your main home is usually exempt thanks to Private Residence Relief (PRR), provided you've lived in it throughout your ownership. However, if you've let part of it out, used it for business, or it's very large, PRR may only apply partially.

The CGT annual allowance: How much can you make tax-free?

Every individual in the UK has an Annual Exempt Amount (AEA) – a tax-free threshold for capital gains each year. For 2025/26, that figure is £3,000.

That means the first £3,000 of net gains you make in the tax year is completely tax-free.

Here are a few important points about the allowance:

• It applies per person
• It's a use-it-or-lose-it allowance. You can't carry unused allowance into the next tax year
• It has an exception – trustees have a lower allowance of £1,500

⚠️ Good to know

The annual CGT allowance has been cut dramatically over the past three years, meaning far more people now have taxable gains even on relatively modest disposals. If you haven't reviewed your investments recently, it's worth doing so now.

CGT rates

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

Since the October 2024 Budget, the main CGT rates have been aligned across most asset types.

The previous distinction between residential property rates and other assets has been removed for the main rates, which simplifies things. However, it has also increased the tax burden for investors selling shares and similar assets.

You pay 18% Capital Gains Tax while your total taxable income and gains remain within the basic-rate band (£50,270 for 2025/26). Any gains above that threshold are taxed at 24%.

💡 Did you know?

You can use your annual CGT allowance against whichever gains would be taxed at the highest rate, so it makes sense to offset it against gains that would otherwise face the 24% rate.

What about the Business Asset Disposal Relief?

If you're selling a business or your shares in a company you work for, Business Asset Disposal Relief (BADR) may apply. This gives you a reduced CGT rate on up to £1 million of qualifying lifetime gains.

This is how the BADR works according to the disposal date:

To qualify, you generally need to have owned the business for at least two years and meet certain HMRC eligibility rules regarding your involvement in the business.

How to calculate your CGT bill

If you want to plan ahead for your CGT bill, the formula is straightforward:

Sale proceeds − purchase price − allowable costs − annual exempt amount = taxable gain

Allowable costs can include solicitor and estate agent fees, stamp duty paid on purchase, and the cost of significant improvements (a new coat of paint doesn't count).

For example, imagine you sell a buy-to-let flat for £280,000: You originally bought it for £200,000, spent £10,000 on improvements such as a new kitchen, and paid £5,000 in selling costs, for a total gain of £65,000.

When you subtract the annual CGT allowance of £3,000, that leaves you with a taxable gain of £62,000.

When you have your taxable gain, just multiply it by your taxpayer band rate. If you're a higher-rate taxpayer, residential property gains are usually taxed at 24%.

In this example, your CGT bill would be £14,880.

How and when to report CGT

How you report CGT depends on what you've sold.

For UK residential property, you must report and pay any CGT owed within 60 days of completion. For other assets, you'll report through your annual Self Assessment tax return, with the tax due by 31 January following the end of the tax year.

So for gains made in 2025/26, the deadline is 31 January 2027.

🧠 Good to know

ANNA's Self Assessment service prepares and files your return automatically, and for free – no spreadsheets, no chasing accountants.

If you've made a capital gain that needs reporting as part of your annual return, ANNA's Auto Accountant handles the numbers and files directly to HMRC.

Practical ways to reduce your CGT bill

With the annual exempt amount at just £3,000 and rates at 18% to 24%, a bit of planning goes a long way.

Here are some ways to lower your CGT bill:

• Use your allowance every year: Because the allowance can't be carried forward, consider 'crystallising' gains up to the £3,000 threshold each year.
• Move investments into an ISA: You can sell investments from a taxable account and immediately repurchase them inside your ISA. Future growth is then sheltered from CGT. Unlike bed-and-breakfasting rules for shares, there's no 30-day restriction for ISA transfers.
• Harvest losses: If you hold any assets sitting at a loss, consider realising those in the same tax year as your gains to reduce your overall taxable position.
• Use pensions: Contributing to a pension can reduce your taxable income, which in turn may lower the CGT rate that applies to gains near the basic/higher rate threshold.

💡 Did you know?

Transferring assets between spouses or civil partners is one of the most effective – and underused – CGT planning tools available. It allows couples to double their available annual exempt amount and use whichever partner's lower tax rate applies to a gain.

ANNA: Know your CGT position before HMRC does

Tracking gains, losses, allowable costs, and reporting deadlines throughout the year can quickly become messy, especially if you have multiple investments or property transactions. Small details like fees, improvements, or timing can all affect what you owe, and they're easy to lose track of.

ANNA keeps everything organised in one place as you go, so you don't have to reconstruct a year's worth of activity at tax time.

Here's what you get:

• A running tax estimate, updated as you go: As income comes in and disposals happen throughout the year, ANNA recalculates your likely tax position automatically. You'll always know roughly what you owe before the deadline lands.
• Smart Pots: Every time funds hit your account, ANNA can automatically set a percentage aside for Income Tax, CGT, or VAT. The money is there when HMRC expects it.
• Easy, free Self Assessment: ANNA's Auto Accountant pulls together your income, gains, and allowable expenses and submits your return directly to HMRC. ANNA will also file your 2025–26 Self Assessment for free, and if you’ve filed elsewhere, you’ll get a full refund when you switch.
• Automatic expense tracking: Every deductible cost – solicitor fees, improvement works, professional advice – can reduce the gain you're taxed on. ANNA captures expenses throughout the year, so nothing that could lower your bill gets overlooked.
• One account for your business finances and tax: Cash flow, bookkeeping, invoicing, and tax obligations all sit in the same place.
• Round-the-clock support: CGT deadlines don't always surface at convenient moments. ANNA's support team is available 24/7, so you can get an answer on a Sunday evening just as easily as on a Tuesday afternoon.

Open your ANNA account today and go into every tax deadline knowing exactly where you stand.