Capital Gains Tax Allowance and Rates

Capital Gains Tax (CGT) is a tax on the profit you can make when you sell or give away an asset that has increased in value. The capital gains tax allowance is the amount of profit you can make each tax year without even paying any CGT.

Where capital gains tax allowance dropping to £3,000 for 2025/26 in the UK, many investors, landlords, and small business owners will face higher tax bills. Understanding the rules and rates now can help you plan smarter.

What Is the Capital Gains Tax Allowance in 2025?

For the tax year 2025/26, the capital gains tax allowance is £3,000. If your total gains in the tax year are below this capital gains limit, you don’t have to pay any CGT.

If your gains are above £3,000, you pay CGT on the amount over the allowance. If you do not use this allowance within the current year, it cannot be carried forward to future years or transferred to anyone else.

What is the Percentage of Capital Gains Tax?

If you’re a higher or additional rate taxpayer, the amount you pay will depend on the date and type of your gain.

Gains from 6 April 2025 onwards

• 24% on your gains from residential property

• 32% on your gains from carried interest if you manage an investment fund

• 24% on your gains from other chargeable assets

If you pay basic rate Income Tax

If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

Gains from 6 April 2025 onwards

• 18% on your gains from residential property

• 32% on your gains from carried interest if you manage an investment fund

• 18% on your gains from other chargeable asset

How Does the CGT Allowance Work?

Understanding how the Capital Gains allowance works can help you figure out if you need to pay tax on the profits you make from selling assets.

1. Add up all your gains for the tax year.

2. Deduct any allowable losses.

3. Deduct the CGT allowance of £3,000.

4. If the remaining amount is above zero, you pay CGT at the rates based on your income tax band.

What Is the Capital Gains Limit?

The capital gains limit refers to the annual tax-free allowance (currently £3,000 for 2025/26). If your capital gains are under this limit, no CGT is due.

Taxable Items for Capital Gains Tax

You pay CGT when you sell or dispose of certain assets, including:

• Personal belongings worth £6,000 or more (except cars), such as jewellery, coins, stamps, antiques, paintings, and sets like chess sets

• Property that isn’t your main home

• Your main home, if it’s let out or used for business

• Business assets

• Shares and investments not held in tax-free accounts like ISAs or PEPs

• Overseas assets (special rules apply)

Exemptions

CGT does not apply to:

• Gifts to a spouse, civil partner, or charity

• Assets in ISAs, PEPs, Premium Bonds, UK government gilts, or lottery winnings

Capital Gains Allowances on Shares and Investments

When you sell shares or investments that are not held in tax-free accounts, you may need to pay Capital Gains Tax on any profit you make. However, some shares and gifts are exempt from this tax.

• Gains from selling shares outside ISAs or PEPs are taxable.

• Gifts of shares to spouse, civil partner, or charity are exempt.

• Shares in employer Share Incentive Plans and some government bonds are also exempt.

Capital Gains Allowances on Property

When you sell a property, Capital Gains Tax usually doesn’t apply to your main home because of Private Residence Relief. However, if you sell a second home, like a buy-to-let or holiday property, you may have to pay CGT.

• Your main home is usually exempt due to Private Residence Relief.

• You may owe CGT on second homes, like buy-to-let or holiday properties.

• You can nominate which property counts as your tax-free main home within 30 days of buying.

How to Reduce Your Capital Gains Tax Bill

1. Use your CGT allowance fully: The £3,000 allowance every year shields some gains from tax. Make sure to use it because it cannot be carried forward.

2. Offset losses: Deduct allowable losses from your gains before applying the allowance.

3. Claim reliefs: Certain reliefs, like Business Asset Disposal Relief, can lower rates to 14% on qualifying gains.

4. Hold investments in tax-efficient accounts: ISAs and pensions (SIPPs) shelter gains from CGT.

5. Plan sale timing: Spread sales over different tax years to use multiple allowances.

6. Main home exemption: Gains on your main residence are usually exempt.

7. Gifts to spouse/civil partner: Transfers between spouses do not trigger CGT, letting you use both allowances.

Conclusion

Understanding the Capital Gains Tax (CGT) allowance and rates for 2025 is key to managing your tax efficiently, especially with the allowance dropping to £3,000. CGT applies to profits from selling assets like second homes, business assets, and some investments, while your main home often gets relief. To reduce your tax bill, make sure to use your full allowance, claim any reliefs available, offset losses, plan sales across different tax years, and use tax-efficient accounts such as ISAs. Knowing these rules helps you keep more of your profits. For complex cases, it’s best to seek professional advice.

FAQ

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.