Capital Gains Tax: A Complete Guide to CGT Rates and Allowances

What Is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax on the profit (or "gain") you make when you sell or dispose of an asset that has increased in value. It is the gain that is taxed, not the total amount you receive. CGT applies to a wide range of assets including investment properties, shares, business assets, valuable personal possessions worth over £6,000, and cryptocurrency. Your main home is usually exempt under Private Residence Relief (PRR), and assets held within an ISA or pension are also exempt.

CGT Rates for 2025/26

Following the changes announced in the Autumn Budget 2024, CGT rates increased significantly. For disposals from 30 October 2024 onwards, the rates are:

• Basic rate taxpayers: 18% on all chargeable gains (previously 10% on most assets)
• Higher and additional rate taxpayers: 24% on all chargeable gains (previously 20% on most assets)

For residential property that is not your main home, the rates remain at 18% for basic rate taxpayers and 24% for higher rate taxpayers, which means they are now aligned with the rates for other assets. This alignment simplified the system but increased the tax burden for those selling non-property assets.

The Annual Exempt Amount

Every individual has an annual CGT exemption, which is the amount of gains you can make tax-free each year. For 2025/26, the Annual Exempt Amount is £3,000. This has been drastically reduced from £12,300 just a few years ago, making CGT planning more important than ever. The annual exemption cannot be carried forward — if you do not use it in a tax year, it is lost. Married couples and civil partners each have their own £3,000 exemption, so transfers between spouses before a sale can be a useful planning tool.

Business Asset Disposal Relief (BADR)

Formerly known as Entrepreneurs' Relief, Business Asset Disposal Relief allows qualifying business owners to pay a reduced rate of CGT when they sell all or part of their business or shares in a personal trading company. The current BADR rate is 14% (rising to 18% from April 2026), with a lifetime limit of £1,000,000 of qualifying gains. To qualify, you must have owned the business or shares for at least two years and, for shares, you must hold at least 5% of the shares and voting rights and be an officer or employee of the company.

BADR can provide significant savings. On a £500,000 gain, BADR at 14% would result in a CGT bill of £70,000 compared to £120,000 at the standard 24% rate — a saving of £50,000.

Private Residence Relief (PRR)

Your main home is usually completely exempt from CGT under Private Residence Relief. However, the relief can be restricted if you have not lived in the property for the entire period of ownership, if you have used part of the property exclusively for business, or if the grounds exceed 0.5 hectares. The last 9 months of ownership are always exempt (reduced from 18 months in 2020), even if you have already moved out. If you let out part of your home, Letting Relief may apply, but this is now limited to situations where you are in shared occupation with the tenant.

CGT on Property: The 60-Day Reporting Rule

If you sell a UK residential property and there is CGT to pay, you must report the disposal to HMRC and pay the estimated tax within 60 days of completion. This is done through the "Report and pay Capital Gains Tax on UK property" service on GOV.UK. This deadline applies even though you will also report the gain on your Self Assessment return. Failure to report within 60 days can result in a £100 late filing penalty, with additional penalties for continued non-compliance. Many property sellers are caught out by this relatively new requirement.

CGT on Shares and Investments

When you sell shares, you need to calculate the gain by deducting the acquisition cost from the sale proceeds. If you have bought shares in the same company at different times, you must use the "share pooling" rules to calculate the average cost per share. Special rules apply to shares bought within 30 days of the sale (the "bed and breakfast" rule). CGT does not apply to shares held in an ISA, which is why maximising your ISA allowance (£20,000 per year) is one of the simplest and most effective CGT planning strategies.

Strategies to Minimise CGT

There are several legitimate strategies to reduce or defer your CGT liability:

• Use your annual exemption — Consider spreading disposals across tax years to utilise the £3,000 exemption each year.
• Transfer assets to your spouse — Transfers between married couples and civil partners are CGT-free, allowing you to use both exemptions and potentially keep gains within the basic rate band.
• Maximise ISA contributions — Gains within an ISA are completely exempt from CGT.
• Claim all allowable costs — Stamp duty, legal fees, estate agent fees, and improvement costs can all be deducted from the gain.
• Consider timing — If you are close to a tax year end, deferring a sale by a few days can give you an additional year's annual exemption.
• Pension contributions — Making pension contributions can reduce your total income, potentially keeping your gains within the basic rate band.
• Gift to charity — Gifts of assets to charity are exempt from CGT, and you may also be able to claim Income Tax relief on the market value of the gift.

When to Seek Professional Advice

CGT is an area where professional advice can make a significant financial difference. If you are planning to sell a business, investment property, or significant shareholding, speak to a tax adviser before the disposal takes place — not afterwards. Many CGT planning opportunities are only available if they are implemented before the sale. At London Accountant, our tax planning team regularly helps clients across London structure their disposals in the most tax-efficient way. Contact us for a confidential discussion about your situation.