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Capital Gains Tax

Capital Gains Tax (CGT) is payable when you sell or dispose of an asset that has increased in value. For the 2025/26 tax year, every individual has an annual exempt amount of £3,000. This means the first £3,000 of gains in the tax year (6 April to 5 April) are tax-free. Gains above this threshold are taxed at rates that depend on your income tax band and the type of asset.

For most assets (shares, funds, collectibles), basic-rate taxpayers pay 10% and higher-rate taxpayers pay 20%. Residential property gains are taxed at 18% for basic-rate and 24% for higher-rate taxpayers — rates that increased from 2024/25 levels. These property rates apply to gains on second homes and buy-to-let properties, not your main residence, which is covered by Private Residence Relief.

Business Asset Disposal Relief

Formerly known as Entrepreneurs' Relief, Business Asset Disposal Relief (BADR) applies a flat CGT rate of 14% on qualifying business asset disposals in 2025/26 (rising from 10% in prior years). This is scheduled to increase to 18% from 2026/27 onwards. The lifetime limit is £1 million. Qualifying disposals include selling all or part of a trading business, shares in a personal trading company, or assets used by your business after you cease trading. BADR must be claimed via your Self Assessment tax return — it is not automatic.

Carried Interest

Investment managers who receive carried interest face a special CGT rate of 32% on their carried interest gains. This rate was introduced to ensure carried interest is taxed more closely in line with income tax rates. The rules are complex and apply to individuals who provide investment management services to a collective investment scheme and receive a performance-linked return. HMRC maintains detailed guidance on what constitutes carried interest as opposed to capital gains from a genuine investment.

Reporting Capital Gains

You must report gains to HMRC via your Self Assessment tax return. From 2024/25 onwards, if your total gains exceed the annual exempt amount (£3,000), you need to complete the Capital Gains summary pages (SA108). If you sell residential property that gains are due on, you must report and pay CGT within 60 days of completion using HMRC's property disposal reporting service — this applies even if you are not normally required to file a full Self Assessment return. Failure to report on time can result in penalties and interest charges.

Capital Losses

If you sell an asset at a loss, you can use that loss to offset gains in the same tax year. If your losses exceed your gains, you can carry forward the unused losses to offset gains in future tax years. You must report losses to HMRC within four years of the end of the tax year in which they arose. Losses cannot normally be set against income (except for shares in unlisted trading companies under the Share Loss Relief rules). "Bed and breakfasting" — repurchasing the same shares within 30 days — is caught by the same-day and 30-day share identification rules, meaning the disposal is matched against the repurchase first, so the loss or gain is deferred.

Assets That Attract CGT

CGT applies to a wide range of assets including shares (not in ISAs or SIPPs), unit trusts, ETFs, gilts (though gains on gilts are exempt from CGT for individuals), investment bonds, land, buildings, and valuable personal possessions worth more than £6,000 (excluding your car). Your main home is exempt. Gifts between spouses and civil partners are exempt from CGT, meaning you can transfer assets without triggering a tax charge — the recipient takes on your original cost basis. This can be useful for utilising both partners' annual exempt amounts.

CGT Planning

With the annual exempt amount at just £3,000, basic tax planning has become more important. Consider using both spouses' allowances, making full use of ISA allowances (where gains are tax-free), and timing disposals across tax years. If you are close to a tax band boundary, it may be worth realising gains before crossing into the higher-rate bracket to benefit from the 10% rather than 20% rate. Since the CGT rates on property increased to 24% for higher-rate taxpayers, there is a greater incentive to plan buy-to-let disposals carefully, perhaps spreading disposals across multiple tax years.