Capital Gains Tax: The Complete UK Guide 2025/26

What Is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. The tax is on the gain — the difference between what you paid (including buying costs) and what you receive (minus selling costs) — not the full sale proceeds. Disposals include: selling shares or funds, selling crypto, giving assets away (the gain is calculated on the market value at the time of the gift), selling a second home or buy-to-let property, selling a business or business assets, and receiving insurance payouts on assets above cost. CGT does not apply to your main home (covered by Private Residence Relief), assets sold within an ISA or pension, your car, or personal possessions worth under £6,000.

"Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value"

CGT Rates for 2025/26

Following the October 2024 Autumn Budget, CGT rates increased substantially. For assets sold from 30 October 2024 onwards: basic rate taxpayers pay 18% on gains from all assets including residential property (previously 10% on shares, 18% on property). Higher and additional rate taxpayers pay 24% on all assets (previously 20% on shares, 24% on property). The rate that applies depends on whether the gain, when added to your taxable income, falls into the basic rate or higher rate band. Business Asset Disposal Relief (BADR) applies a reduced rate on qualifying business sales: 14% for 2025/26 (rising to 18% from April 2026) on gains up to the £1 million lifetime limit.

The Annual Exempt Amount

Every individual has an Annual Exempt Amount (AEA) of £3,000 for 2025/26 — gains up to this figure are completely tax-free each year. This allowance has been dramatically reduced from £12,300 in 2022/23 and cannot be carried forward. You should plan disposals to use this allowance rather than letting it go to waste. Strategies include: crystallising gains in investments that have grown but which you still want to hold (sell and immediately repurchase — known as a Bed and ISA transfer into an ISA, or Bed and SIPP into a pension), spreading large disposals across two tax years to use two annual exemptions, and transferring assets to a spouse before selling to use their allowance as well.

Calculating Your Gain

Your gain is: sale proceeds minus allowable costs. Allowable costs include: the original purchase price, buying costs (stamp duty, legal fees, broker commissions), any costs of improving the asset (e.g. an extension to a property — not maintenance), and selling costs (estate agent fees, legal fees, broker commissions). For shares, if you have bought the same shares at different times, HMRC uses a pooling calculation rather than specific identification. Keep records of all purchases and their costs. For crypto, every disposal — sale, exchange, or use to buy goods — is a taxable event, and the record-keeping burden is significant. Use crypto tax software (Koinly, CryptoTaxCalculator) to compile records.

"an extension to a property — not maintenance), and selling costs (estate agent fees, legal fees, broker commissions)"

Reducing Your CGT Bill: Key Strategies

Several legitimate strategies reduce CGT. ISA sheltering: assets inside a Stocks and Shares ISA have no CGT on future gains — a Bed and ISA transfer (sell outside ISA, immediately repurchase inside your ISA allowance) shields future growth permanently. Spouse transfers: assets can be transferred between spouses at no gain, no loss — use this to use both annual exemptions and ensure gains fall in the lower-earning partner's hands. Loss harvesting: sell loss-making investments to crystallise losses that offset gains. Pension contributions: increasing pension contributions lowers your adjusted net income, potentially reducing your CGT rate from 24% to 18% if it pulls you back into the basic rate band. EIS/SEIS investments offer CGT deferral and exemption for qualifying shares.

CGT on Property: Special Rules

Residential property has its own specific CGT rules that differ from other assets. Your main home is protected by Private Residence Relief — if you have lived in it throughout your ownership, there is typically no CGT at all. Buy-to-let, second homes, and properties you inherited and have not lived in are fully taxable. The rate is 18% (basic rate) or 24% (higher rate) on the gain. Critically, you must report and pay any CGT on UK residential property within 60 days of the completion date — not at the January Self Assessment deadline. Do this via the HMRC "Report and Pay CGT on UK Property" online service. Failure to report in time triggers a £100 automatic penalty even if no tax is owed.

Business Asset Disposal Relief (BADR)

BADR (formerly Entrepreneurs' Relief) reduces the CGT rate on qualifying business disposals. For 2025/26, the BADR rate is 14% on qualifying gains up to a £1 million lifetime limit. To qualify, you must have owned at least 5% of the company's ordinary shares and voting rights for at least 2 years, and been an officer or employee of the company. The rate will increase to 18% from April 2026 — if you are planning to sell a qualifying business, the timing of the disposal has a meaningful impact on your tax bill. BADR also applies to the disposal of business assets used in a trade (such as goodwill when selling a sole trader business).

"BADR (formerly Entrepreneurs' Relief) reduces the CGT rate on qualifying business disposals"

How and When to Report and Pay

For most assets (shares, crypto, business assets): report gains on your Self Assessment tax return and pay by 31 January following the end of the tax year. You do not need to report if total gains are below the £3,000 annual exempt amount and you have not made any losses you want to register. For residential property in the UK: use the HMRC 60-day property disposal service and pay within 60 days of completion — this is separate from and in addition to Self Assessment. If you do not normally file Self Assessment but have gains to report, you can use the HMRC "real-time" CGT service to report and pay outside the SA system. Keep records of all transactions for at least 5 years after the relevant tax return.