What is Capital Gains Tax?

Capital Gains Tax (CGT) may apply when you sell, gift or exchange an asset that’s worth more than when you got it.

 

When might CGT apply

You usually pay CGT when you sell or dispose of certain things.

Personal possessions worth £6,000 or more

Not including your car, unless it is used for business.

Property you own

Such as a buy-to-let or business property. You might also pay CGT on your main home if you’ve let it out, used it for business or it’s very large.

Investment funds and shares

Except those held in an ISA or pension. Explore how funds work.

Other business assets

Such as land, equipment or even trademarks.

When you dispose of these assets, you’re only taxed on the gains you make. You’re not taxed on the total amount you get from the sale.

Your Capital Gains Tax allowance

Each tax year, you have a Capital Gains Tax allowance. You might also see this referred to as the annual exempt amount (AEA).

If the gains you make are less than the allowance, they will remain exempt from CGT. But if you go over the allowance, you’ll have to pay an amount of Capital Gains Tax.

For this tax year the Capital Gains Tax allowance is £3,000 and £1,500 for trusts. You can find out about Capital Gains Tax on the GOV.UK website.

Your allowance only applies to a single tax year. You can’t roll it to the next tax year if you don’t use all your allowance.

What is the Capital Gains Tax rate?

CGT applies to any gains over the Capital Gains Tax allowance. The rate you pay is based on your income band as a UK taxpayer.

For this tax year the tax rates are:

For the 2025/26 tax year, the tax rates are:

 Income tax band

Capital Gains Tax rate

 Income tax band

Basic rate

Capital Gains Tax rate

 18%

 Income tax band

Higher rate

Capital Gains Tax rate

 24%

 Income tax band

Additional rate

Capital Gains Tax rate

24%

Source: GOV.UK website

If your taxable income and capital gains, minus allowances, falls within the basic income tax band, you’ll pay 18% CGT on most assets.

If the combined amount, minus allowances, goes into the higher rate band, you’ll pay 24% on the portion that exceeds the basic rate threshold.

How much is your Capital Gains Tax?

You can start by working out your total gains. To do this, you’ll need to know:

  • what the asset was worth when you bought or received it
  • how much it was worth when you disposed of it
  • the Capital Gains Tax allowance for the current tax year
  • your income tax band.
     

What would your total gains be?

The difference between the value of the asset when you received it and the value when you disposed of it. You can then take away your Capital Gains Tax allowance. The remaining amount will be taxable.

2025/26 tax year example

Say you made a £10,000 gain by selling some shares. £3,000 would be exempt based on the current allowance for the 2025/26 tax year. You’ll then have to pay tax on the remaining £7,000.

If you’re on a basic rate, your Capital Gains Tax rate would be 18%. This means you’ll pay £1,260 in tax.

If you’re on a higher or additional rate, you would have to pay £1,680 in Capital Gains Tax at a rate of 24%.

When do you pay Capital Gains Tax?

If you’ve made a gain after selling or disposing of an asset, you can report and pay any due tax using the HMRC ‘real-time’ service. Or you can report it in your self-assessment tax return on the GOV.UK website the following tax year.

For example, if you sold an investment in May 2025 during the 2025/2026 tax year, you must include it on a self-assessment tax return by 31 January 2027.

The rules are slightly different if you’re selling a residential property. In this case, you must report and pay any Capital Gains Tax within 60 days of selling. 

You can report Capital Gains Tax on the GOV.UK website or by post.

How to pay your Capital Gains Tax

To pay, you’ll need to find your capital gains payment reference number. This is a 14-character code starting with ‘X’, which HMRC usually sends in a letter or email once you make a report.

You can pay online by bank transfer or by cheque.

When you might be exempt from CGT

Certain assets are tax efficient, which could help to eliminate or reduce the amount of Capital Gains Tax you need to pay on them.

ISAs

You won’t pay UK income and Capital Gains Tax on ISA dividends and interest. But other taxes could apply, such as withholding tax on investments in foreign stocks.

Our ISAs

Pensions

Capital Gains Tax doesn’t apply to any returns you make on your pension funds either.

Our pension options

UK gilts and premium bonds

Unlike other bonds, premium bonds and gilts are exempt from Capital Gains Tax.

Learn about bonds and gilts

Betting, lottery, or pools winnings

These are categorised as winnings rather than income or capital gains, so are exempt from tax.

Inherited assets

You don’t have to pay Capital Gains Tax when you inherit an asset unless you decide to dispose of it.

Gifts

You also don’t have to pay Capital Gains Tax on gifts to your spouse or civil partner, or gifts for charity.

Rules when living abroad

You might not have to pay UK Capital Gains Tax on UK shares if you’re not a UK resident. The only exceptions are:

  • if you come back to the UK within 5 years
  • if you sell shares in a company that is ‘UK property rich’. This means 75% or more of the asset value is UK land.

In both cases, you would have to pay CGT as a non-UK resident. You can find out about Capital Gains Tax on the GOV.UK website.

Tips to reduce your Capital Gains Tax

There are certain things you can do to try and reduce your Capital Gains Tax each tax year.

Transfer assets to a spouse

That way you can make the most of both yours and your partner’s Capital Gains Tax allowance.

Look for tax-efficient ways to invest

This could include investing in a stocks and shares ISA or contributing more to your pension fund. Explore tax‑efficient investing.

Increase your pension contributions

Paying more into your pension might also help you lower your tax bracket and benefit from the basic Capital Gains Tax rate.

Give to charity

This is exempt from Capital Gains Tax so may help you stay within your Capital Gains Tax allowance.

Report your losses

If you’ve made a loss on other assets in the same tax year, you can report it to HMRC. This could then help offset your overall gains and reduce your tax. Report capital losses on the GOV.UK website.

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