What Is Capital Gains Tax?

What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax on the profit you make when you sell an asset that has increased in value. It is charged on the gain, not on the full sale price. If you buy something for £10,000 and sell it for £18,000, CGT is charged on the £8,000 gain. CGT applies to shares, investment funds, second properties, and certain personal possessions worth over £6,000 (such as jewellery or art). It does not apply to your main home (with some exceptions), ISAs, pensions, or UK government bonds (gilts).

CGT allowance 2026/27: the annual exempt amount

The CGT allowance, properly called the annual exempt amount, is £3,000 for 2026/27. It is unchanged from 2025/26. You only pay Capital Gains Tax on gains above that figure. The allowance belongs to you as a person, not to each asset. It covers all your gains for the year added together. Trusts get £1,500.

The allowance has been cut sharply in recent years. As a result, many more ordinary investors now have to think about a CGT bill:

• 2022/23: £12,300
• 2023/24: £6,000
• 2024/25 onwards, including 2026/27: £3,000

The allowance resets on 6 April each year. Unused allowance cannot be carried forward, so any part left at the end of a tax year is lost. The 2026/27 tax year runs from 6 April 2026 to 5 April 2027.

A common mistake: the £3,000 is measured against your gain, not the money you receive. Selling shares for £18,000 that cost £10,000 gives an £8,000 gain. The £8,000 is compared with the allowance, not the £18,000.

What are the CGT rates for 2026/27?

CGT rates for 2026/27 are 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. Both are unchanged from 2025/26. These rates apply to most assets, including shares and residential property (other than your main home).

Shares, funds, and most other assets:

• Basic rate taxpayers: 18%
• Higher/additional rate taxpayers: 24%

Residential property (not your main home):

• Basic rate taxpayers: 18%
• Higher/additional rate taxpayers: 24%

Note: CGT rates on residential property were cut from 18%/28% to 18%/24% in the Spring 2024 Budget, effective 6 April 2024.

Which rate applies depends on adding your capital gains on top of your taxable income for the year. If your income plus gains goes into the higher-rate band, the part above the higher-rate threshold is taxed at the higher CGT rate.

That link to your income catches people out. A gain can be split across both rates. For example, someone on a modest salary might pay 18% on the part of the gain that fits inside the basic-rate band, and 24% on the part that spills over the higher-rate threshold. It is worth knowing where the income tax bands fall before you work out a CGT bill. Your salary decides the CGT rate as much as the gain does.

Worked example: CGT on selling shares (2026/27)

Here is a step-by-step example. It shows CGT for a basic-rate taxpayer who sells shares outside an ISA in the 2026/27 tax year.

Scenario: Priya is a basic-rate taxpayer. She sells shares she bought for £10,000 for £18,000.

1. Calculate the gain: £18,000 sale price − £10,000 purchase cost = £8,000 gain.
2. Subtract the annual exempt amount: £8,000 − £3,000 (2026/27 allowance) = £5,000 taxable gain.
3. Apply the rate: Priya is a basic-rate taxpayer, so CGT is charged at 18%. £5,000 × 18% = £900 CGT due.

If Priya were a higher-rate taxpayer, the same gain would be taxed at 24%, or £1,200. If she held the same shares inside a stocks and shares ISA, no CGT would be due and nothing would need reporting to HMRC.

How does CGT work on shares?

CGT on shares is charged on the profit you make when you sell shares held outside an ISA or pension. The 2026/27 rates are 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. These apply after the £3,000 annual exempt amount. CGT applies to listed shares, AIM shares (with some Business Asset Disposal Relief exceptions), unit trusts, and investment funds held in a General Investment Account (GIA).

• Same-day rule: shares of the same class bought and sold on the same day are matched first.
• 30-day rule (‘bed and breakfasting’): shares bought back within 30 days of a sale are matched against that sale. This stops you crystallising a loss and buying straight back in.
• Section 104 holding: remaining shares of the same class are pooled at average cost.

The pooling rule causes most of the confusion. If you bought the same shares several times at different prices, you cannot choose which ones you sold. HMRC treats them as one pool at average cost. The gain is worked out against that average, not against whichever purchase suits you.

Gains on investments held inside an ISA sit outside CGT entirely. This is a large part of what the £20,000 annual ISA allowance is for. Shares held inside an ISA are not liable to CGT at all, however large the gain. They do not need to be declared on a tax return.

What counts as a disposal for CGT?

A disposal for CGT purposes is any transaction that transfers ownership of an asset. It is not only a sale. You make a disposal when you sell an asset, give it away (other than to a spouse or civil partner), swap it for another asset, or receive compensation for an asset that was lost or destroyed. Under HMRC rules, transfers between spouses and civil partners are not disposals.

Do you pay CGT when you sell your main home?

You do not normally pay CGT when you sell your main home. This exemption is called Private Residence Relief (PRR). CGT can still apply in some cases, for example, if you let part of the property, used it partly for business, or the garden is over half a hectare. A property bought specifically to make a profit is also unlikely to qualify for full relief.

• If you’ve let part of the property (only part of the gain is covered)
• If you’ve been away from the property for extended periods
• If the garden or grounds are very large (over half a hectare)
• If you bought the property specifically to make a gain

Second homes and buy-to-lets are different. They get no Private Residence Relief, so the whole gain is in scope. CGT is also only one of the property taxes. Stamp duty on an additional property is a surcharge on top of the standard rates when you buy it.

What CGT exemptions and reliefs are available?

HMRC sets out several statutory CGT exemptions. Assets held in an ISA are fully exempt from CGT. The annual exempt amount (£3,000 in 2026/27) shelters gains below that threshold. Capital losses in a tax year are deducted from gains. Unused losses can be carried forward. Transfers between spouses or civil partners do not trigger CGT.

• ISA exemption: under HMRC rules, gains on investments held inside an ISA are not subject to CGT.
• Annual exempt amount: HMRC does not charge CGT on gains below £3,000 per tax year (2024/25 onwards). Unused annual exempt amount cannot be carried to future years.
• Capital losses: under HMRC rules, allowable losses in a tax year are deducted from gains in the same year. Unused losses can be carried forward to future tax years.
• Spousal transfers: HMRC does not treat transfers between spouses or civil partners as disposals, so no CGT arises on the transfer itself.

The full rules on CGT exemptions and reliefs are published at gov.uk/capital-gains-tax.

How do you report and pay CGT?

For UK residential property, you must report and pay CGT within 60 days of completion. Use HMRC’s online Capital Gains Tax service. This applies even if you do not normally file a Self Assessment return. For other assets (shares, funds, and so on), CGT is reported through Self Assessment for the tax year in which the disposal happened. The deadline is 31 January after the end of that tax year.

Records matter more than the paperwork itself. The gain is the sale price minus what you originally paid. So you need the purchase cost, the sale price, the dates, and any buying and selling costs. Some of these records can go back years. Most platforms produce an annual tax statement, but you are responsible for keeping the figures.

If all your investments sit inside an ISA, there is nothing to report. ISA gains never go on a tax return, whatever the amounts. This is a large part of what the ISA wrapper is for.

Do you pay CGT on cryptocurrency?

Yes. HMRC treats cryptoassets, such as Bitcoin and Ethereum, as property for tax purposes. So disposing of them can trigger Capital Gains Tax. A disposal includes selling crypto for pounds, swapping one cryptocurrency for another, using crypto to pay for goods or services, or gifting it (other than to a spouse). The gain is the rise in pound value between the date you acquired the crypto and the date of disposal.

The same £3,000 annual exempt amount applies. Gains above it are taxed at 18% (basic rate) or 24% (higher and additional rate). HMRC’s pooling rules also apply. You cannot simply use the price of one specific coin. The cost basis is the pooled average. The full HMRC guidance is in the Cryptoassets Manual on gov.uk.

How can you reduce your Capital Gains Tax bill?

HMRC rules allow several legitimate ways to reduce a CGT bill. Investments held in ISAs and pensions are outside CGT altogether. The annual exempt amount refreshes every tax year. Losses can be set against gains. The timing of a disposal decides which tax year it falls in.

• Use the annual exempt amount: £3,000 of gains per person, per tax year, is tax-free. Couples have a combined £6,000 allowance.
• Crystallise losses: selling assets at a loss in the same tax year reduces the gains liable to CGT.
• Spousal transfers: transfers between spouses or civil partners are not disposals, so each can use their own allowance.
• ISA ‘Bed and ISA’: selling shares from a GIA and immediately rebuying inside an ISA shelters future gains (the initial sale still triggers CGT).
• Pension contributions: paying into a pension extends the basic-rate band, which can reduce the CGT rate from 24% to 18%.