What Is Capital Gains Tax?
Capital Gains Tax, usually shortened to CGT, is the tax you pay on the profit when you sell or give away something that has gone up in value. The important word is profit. You are not taxed on the money you receive for the item, only on the gain, which is the difference between what you paid for it and what you sold it for.
Say you buy some shares for £5,000 and sell them years later for £13,000. You have made a gain of £8,000. It is that £8,000, not the full £13,000, that CGT looks at. If the asset had fallen in value and you sold at a loss, there would be no gain and no tax, and the loss might even help reduce tax on other gains.
A point that trips people up is the word "sell". CGT can apply when you give an asset away, swap it for something else, or get compensation for it, not just when cash changes hands. HMRC calls all of these a "disposal", and a disposal is what triggers the tax. Giving your buy-to-let flat to your adult child is a disposal even though no money moves, and it can create a tax bill.
What You Pay Capital Gains Tax On
CGT applies to what HMRC calls chargeable assets. The most common ones for individuals are:
- Property that is not your main home, such as a second home, a holiday home or a buy-to-let.
- Shares and investments held outside a tax shelter like an ISA or pension.
- Business assets, including selling all or part of a business.
- Valuable personal possessions worth more than £6,000, such as jewellery, art or antiques, though your car is exempt.
- Cryptocurrency, which HMRC treats as an asset like any other for CGT purposes.
Just as important is the list of things that are free of CGT. You do not usually pay it on:
- Your main home, thanks to a relief called Private Residence Relief.
- Your car, unless it was used in a business.
- Anything held inside an ISA or PEP, which is one of the main reasons ISAs are worth using.
- UK government gilts and Premium Bond winnings, along with lottery and betting wins.
- Gifts to your spouse or civil partner, or to a UK charity.
That spouse exemption is quietly one of the most useful rules in the whole system, and we come back to it below.
The Tax-Free Allowance
Everyone gets an annual tax-free amount for capital gains, officially the Annual Exempt Amount. For the 2026/27 tax year it is £3,000. You only pay CGT on gains above this figure in a tax year, and the allowance resets each 6 April. It cannot be carried forward, so if you do not use it in a year, it is gone.
This allowance has shrunk dramatically. As recently as 2022/23 it was £12,300. It was cut to £6,000 for 2023/24 and then halved again to £3,000 from 2024/25, where it has stayed. The practical effect is that far more ordinary sales now produce a tax bill than did a few years ago. Selling a modest share portfolio or a single buy-to-let can easily exceed £3,000 of gain, and once you are over the line the tax is due on everything above it.
Capital Gains Tax Rates for 2026/27
How much CGT you pay depends on two things: what kind of taxpayer you are, and in some cases what kind of asset you sold. Since 30 October 2024 the main rates have been aligned, so most assets are now taxed the same way.
For the 2026/27 tax year, the rates are:
- Basic rate taxpayers pay 18 percent on gains that fall within their remaining basic rate band, and 24 percent on any part of the gain above it.
- Higher and additional rate taxpayers pay 24 percent on their gains.
The catch for basic rate taxpayers is that a large gain can push you into the higher band. You add your taxable gain on top of your taxable income to see how much of the basic rate band is left. Whatever gain fits inside the remaining band is taxed at 18 percent, and the rest at 24 percent. A big one-off gain, such as selling a rental property, often ends up partly taxed at each rate for that reason.
Our Capital Gains Tax calculator works this split out for you, taking your income and your gain and showing the tax at each rate, so you do not have to do the banding by hand.
Business Asset Disposal Relief
If you are selling all or part of a business, there is a valuable relief that reduces the rate. Business Asset Disposal Relief, once called Entrepreneurs' Relief, lets qualifying business sales be taxed at a lower rate on gains up to a £1 million lifetime limit.
That relief has been getting less generous. The rate was 10 percent for years, rose to 14 percent for 2025/26, and has risen again to 18 percent from 6 April 2026. So a qualifying business sale in the 2026/27 tax year is taxed at 18 percent up to the £1 million lifetime cap, rather than the standard 24 percent. It still saves money, but noticeably less than it used to, which matters a great deal if you are timing the sale of a company. A similar relief, Investors' Relief, works for certain outside shareholdings and now shares the same £1 million lifetime limit and 18 percent rate.
If you are thinking about selling up, the interaction between CGT, how the business is valued and the timing of the deal can move the final tax by tens of thousands of pounds. It is worth planning well in advance rather than in the weeks before completion.
The 60-Day Rule on Property
Most CGT is reported and paid through your Self Assessment tax return after the end of the tax year, alongside any payments on account you owe. Selling UK residential property is the big exception, and it catches people out constantly.
If you sell a UK residential property that is not your main home and there is CGT to pay, you must report the gain and pay the tax within 60 days of completion. You do this through a dedicated Capital Gains Tax on UK property account with HMRC, separately from your normal tax return. Miss the 60 days and HMRC charges penalties and interest, even if you had every intention of declaring it later on your Self Assessment.
This short window surprises sellers who assume, reasonably enough, that tax is something dealt with once a year. With property it is not. The clock starts the day the sale completes, and 60 days goes quickly when you are also dealing with a move.
How to Reduce the Bill, Legally
There is a clear line between illegal evasion and sensible planning within the rules. Several entirely legitimate steps can reduce a CGT bill:
- Use both partners' allowances. Because transfers between spouses and civil partners are free of CGT, a couple can move an asset into joint names before selling and use two £3,000 allowances and, where useful, two sets of tax bands. This is one of the most effective and most overlooked moves.
- Use your ISA. Gains on investments held inside an ISA are completely free of CGT, so sheltering shares before they grow avoids the problem entirely.
- Time the disposal. Spreading a sale across two tax years, for example selling half a share holding either side of 6 April, can use two annual allowances instead of one.
- Offset your losses. Losses on other assets reduce your gains. You can carry losses forward to future years, but only if you report them to HMRC, and there is a time limit for doing so.
- Claim the reliefs you are due. Private Residence Relief on a home you have lived in, and Business Asset Disposal Relief on a qualifying business sale, can remove or sharply cut the tax.
None of this is aggressive. It is the ordinary business of not paying more tax than the law asks. The mistakes we see most often are the simple ones: a couple selling in one name when two would have halved the tax, or a loss never reported and so lost forever.
Our View
Capital Gains Tax has quietly become a much bigger issue for ordinary people than it was a few years ago. The allowance falling from £12,300 to £3,000 in two steps means gains that once slipped under the radar now produce real bills, and the alignment of the rates in late 2024 removed the old lower rates that used to apply to shares and other non-property assets.
Our honest view is that CGT rewards planning more than almost any other tax, because so much of it turns on timing and ownership. Who owns the asset when it is sold, which tax year the sale falls in, whether both partners' allowances are used, whether losses have been banked: these decisions are usually made before the sale, and once completion has happened the options narrow fast. The worst outcome is finding out about the 60-day property rule on day 61.
Get advice before you sell, not after. A short conversation ahead of a property or business disposal often pays for itself many times over, and it turns CGT from a nasty surprise into a number you knew was coming.
How IAK Can Help
We help individuals and business owners across North London deal with Capital Gains Tax properly. Our personal tax team calculates your gain, applies every allowance and relief you qualify for, and handles the reporting, whether that is the 60-day property return or your annual Self Assessment. Our tax planning service looks further ahead, structuring ownership and timing before a sale so the bill is as low as the rules allow.
If you are about to sell a property, some shares or a business and want to know where you stand, contact us for a free consultation. You can also try our Capital Gains Tax calculator for a quick estimate, and if a large gift or estate is part of the picture, our Inheritance Tax calculator is worth a look too.
Sources
- Capital Gains Tax, GOV.UK, on what CGT is, what counts as a disposal and which assets are chargeable or exempt.
- Capital Gains Tax rates and allowances, GOV.UK, on the £3,000 Annual Exempt Amount and the 18 percent and 24 percent rates for 2026/27.
- Business Asset Disposal Relief, GOV.UK, on the £1 million lifetime limit and the 18 percent rate from 6 April 2026.
- Report and pay Capital Gains Tax on UK property, GOV.UK, on the 60-day reporting and payment deadline for residential property.
- Tax when you sell shares, GOV.UK, on how CGT applies to shares held outside an ISA or pension.