Capital Gains Tax catches more people every year, not because rates have soared but because the tax-free allowance has been slashed — from £12,300 to just £3,000 in three years. Sell shares, a second home or a valuable asset at a profit and you may owe tax that wouldn't have applied a few years ago. The good news is that with planning, much of it is avoidable. Here is how Capital Gains Tax works in 2025/26.
- You pay Capital Gains Tax on the profit when you sell an asset, not the whole sale price.
- The tax-free allowance is just £3,000 a year — down from £12,300 in 2022/23.
- Rates are 18% for basic-rate taxpayers and 24% for higher-rate, on most assets.
- ISAs, your main home and transfers between spouses are exempt — the key planning tools.
What is a capital gain?
A capital gain is the profit you make when you sell (or give away) an asset for more than you paid. You're taxed on the gain, not the sale price. Sell shares bought for £5,000 for £8,000 and your gain is £3,000 — that's what's potentially taxable, after your allowance.
Common assets that trigger Capital Gains Tax:
- Shares and funds held outside an ISA or pension.
- A second home, holiday home or buy-to-let property.
- Business assets and valuable personal possessions worth over £6,000.
- Cryptoassets.
The shrinking allowance
Everyone gets a tax-free annual exempt amount — gains below it pay no tax. But it has been cut hard:
| Tax year | CGT allowance |
|---|---|
| 2022/23 | £12,300 |
| 2023/24 | £6,000 |
| 2024/25 onward | £3,000 |
At £3,000, far more sales now produce a taxable gain. The Capital Gains Tax calculator works out your bill after the allowance.
The rates
Once your gain exceeds the £3,000 allowance, the rate depends on your income tax band:
- Basic-rate taxpayer — 18% on the gain (where it fits within your basic-rate band).
- Higher or additional-rate taxpayer — 24%.
Because the gain is added on top of your income to decide the rate, a large gain can be partly taxed at 18% and partly at 24%. Residential property gains use the same 18%/24% rates — the property CGT calculator handles second homes and buy-to-let, which must be reported and paid within 60 days of completion.
The legal ways to reduce it
Most Capital Gains Tax is avoidable with planning:
Your main home is exempt
One of the biggest reliefs: Private Residence Relief means selling your only or main home is normally free of Capital Gains Tax altogether. It's why CGT mainly affects second properties and investments, not the family home — though letting out part of your home or having long periods of absence can reduce the relief.
Frequently asked questions
18% for basic-rate taxpayers and 24% for higher-rate, on gains above the £3,000 annual allowance. Your main home is normally exempt.
£3,000 of gains a year are tax-free — down from £12,300 in 2022/23.
Normally no. Your only or main residence usually qualifies for Private Residence Relief and is exempt. CGT mainly hits second homes and investments.
Use ISAs, both spouses' allowances, loss offsetting and spreading sales across tax years. Assets inside an ISA or pension are free of CGT.
For residential property that isn't your main home, you must report and pay within 60 days of completion, separately from Self Assessment.
Figures are 2025/26 estimates for the UK. Capital Gains Tax can be complex — consider advice for large or unusual disposals.