Capital Gains Tax (CGT) is not something most people think about day to day. However, if you decide to sell or dispose of a chargeable asset such as shares, property, or other investments, you may need to pay CGT on the profit you make.
One area of CGT that has seen significant change in recent years is the Capital Gains Tax annual tax-free allowance. This allowance reduces your CGT liability by making a portion of gains tax-exempt. However, the allowance has been reduced considerably over time, from £12,300 in 2022/23 down to just £3,000 in 2026/27.
As a result, more individuals across the UK may now fall within scope for CGT, making it increasingly important to understand how the tax works, what allowances and exemptions may be available, and how to plan in a tax-efficient way.
In this article, we explain what Capital Gains Tax is, how it works in the UK, when you may need to pay it, and the key thresholds and considerations to be aware of for the 2026/27 tax year.
What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value since you acquired it.
The “gain” is the difference between:
- What you originally paid for the asset.
- What you sold it for or the market value if gifted.
CGT can apply whether you sell, gift or transfer an asset and is charged on the profit you make, not the total amount you receive when disposing of an asset.
For example, if you purchase a second property for £300,000 and later sell it for £350,000, you have made a gain of £50,000. It is the £50,000 alone that may be subject to CGT.
Assets that may be subject to CGT include:
- Shares, funds, or other investments held outside of certain tax wrappers.
- Property that is not your primary residence, such as buy-to-let or second homes.
- Personal possessions (e.g. jewellery, art, or antiques) exceeding £6,000 in value at time of disposal.
- Business assets, including land, buildings, or unlisted company shares.
If you sell or dispose of an asset that you own jointly, you are typically taxed on your share of the gain.
Are there assets that are exempt from Capital Gains Tax?
Select assets sit outside the scope of CGT, including:
- Your primary residence (in most cases, due to Private Residence Relief).
- Investments within ISAs and pensions.
- UK Government Gilts or Premium Bonds.
- Gambling, lottery or betting winnings.
- Certain personal-use assets (e.g. your car, unless used for business purposes).
What are the Capital Gains Tax rates for 2026?
The rate of CGT you pay will depend on your overall income and the type of asset being sold. In most cases, the gain is added to your taxable income to determine which rate applies.
For the 2026/27 tax year CGT rates are:
- 18% for individuals whose total taxable income falls within the basic (20%) rate band.
- 24% for individuals whose income falls within the higher (40%) or additional (45%) rate bands.
However, if you are selling qualifying business assets, you may benefit from a reduced rate through Business Asset Disposal Relief (BADR) where eligible.
For the 2026/27 tax year, qualifying gains are typically taxed at a reduced BADR rate of 18% up to a limit of £1m, subject to meeting the relevant conditions.
As CGT is linked to your income level, it is not always a flat rate. This makes getting early professional guidance important to ensure you understand how a disposal may impact your overall tax position.
What are the Capital Gains Tax allowances for 2026?
For the 2026/27 tax year, the Capital Gains tax-free allowance is:
- £3,000 per individual.
- £1,500 for trusts.
This means you can make gains up to this amount within the tax year without paying CGT. However, any gains above this threshold may be subject to tax.
What to be aware of:
- The allowance applies to total gains across the tax year, not per asset.
- It cannot be carried forward to the following tax year if unused.
- Planning the timing of asset disposals can help make better use of available allowances.
With the allowance now significantly lower than in previous years, it is becoming more common for individuals to exceed this threshold, particularly when selling property or investments.
Our financial advisers can help you understand how and when to use your allowances and reliefs, helping to potentially reduce the amount of CGT you may need to pay.
How do I calculate my Capital Gains Tax liability?
To calculate your potential CGT liability:
- Start with your total gain.
- Deduct any allowable expenses incurred in the buying or selling process.
- Deduct your annual allowance if unused (£3,000 for individuals in 2026/27).
- Apply any available reliefs or allowable losses.
- Apply the relevant CGT rate based on your income tax band.
For example:
If you bought a second home for £300,000 and sold it later for £360,000, your capital gain would be £60,000.
Deduct allowable expenses such as estate agent and solicitor costs. Let’s use £10,000 as an example taking the net gain down from £60,000 to £50,000.
After deducting your Capital Gains tax-free allowance of £3,000 for 2026/27, your taxable gain would reduce further to £47,000.
However, as your income level affects the rate of CGT you pay, two people with the same gain may pay different amounts of CGT:
| Category | Basic rate taxpayer (Income between £12,570 to £50,270) | Higher rate taxpayer (Income between £50,271 to £125,140) |
| Annual CGT tax-free allowance | £3,000 | £3,000 |
| Taxable gain (minus allowances and costs) | £47,000 | £47,000 |
| Income before gain | £40,000 | £70,000 |
| Unused basic rate band | £10,270 | £0 |
| Gain taxed at 18% (basic rate income tax band) | £10,270 | £0 |
| Gain tax at 24% (higher rate income tax band) | £36,730 | £47,000 |
| Total CGT payable | £10,270 x 18% = £1,848.60 £36,730 x 24% = £8,815.20 £1,848.60 + £8,815.20 = £10,663.80 | £47,000 x 24% = £11,280 |
| Net profit after CGT | £50,000 (total gain) – £10,663.80 (CGT liability) = £39,336.20 | £50,000 (total gain) – £11,280 (CGT liability) = £38,720 |
In this example, although both individuals made the same £50,000 net gain, the higher rate taxpayer would pay £616.20 more in CGT.
This is due to part of the basic rate taxpayer’s gain falling within their unused basic rate band, leading to £10,720 of their gain be taxed at 18% rather than 24%.
Where do I report and pay my Capital Gains Tax charge?
If you sell a residential property, you must report and pay your CGT liability within 60 days of the completion of the sale.
Other assets must be reported via a Self-Assessment tax return by January 31st following the end of the tax year or using the governments ‘real time’ CGT service.
If you do not report and pay your CGT liability within the applicable deadline you may have to pay interest on the outstanding balance as well as a penalty.
What Capital Gains Tax reliefs are available?
Depending on your personal circumstances, there are reliefs available that may help reduce your CGT liability:
Private Residence Relief (PRR)
In many cases, you will not need to pay Capital Gains Tax when you sell your primary residence, due to Private Residence Relief (PRR), provided you meet the following criteria:
| When you may qualify for full PRR relief | When PRR may be restricted or not fully available |
| The property has been your only or main residence throughout the time you have owned it. | The property was not your main residence for the entire period of ownership. |
| You have not let the property out (this does not include having a lodger). | Part of the property was used exclusively for business purposes. |
| You have not used part of the property exclusively for business purposes. | The property was let out for a period of time. |
| Married couples and civil partners have only one main residence at any given time. | The property includes significant grounds or land, which may affect how relief is calculated in some cases. |
Private Residence Relief is one of the most important CGT reliefs available for homeowners, but the amount of relief available depends on how the property has been used over time. Understanding this early can help you avoid unexpected tax liabilities when selling your home.
Business Asset Disposal Relief (BADR)
Business Asset Disposal Relief (BADR) is a CGT relief that can reduce the amount of tax payable when you sell or dispose of all, or part, of a qualifying business.
The maximum amount of gains that can benefit from Business Asset Disposal Relief is £1 million. This is a lifetime limit (not annual) meaning you can claim BADR on one or multiple qualifying disposals over your lifetime, up until the £1 million limit has been fully used.
Once this limit has been reached, any further qualifying gains will be subject to CGT at the standard rates.
Who may qualify for BADR?
To qualify, there must be a material disposal of business assets, meaning the disposal must lead to a significant reduction or end of business activity.
BADR is generally available to individuals with an ownership or operational interest in a business, including:
- Sole traders.
- Business partners in a partnership.
- Company directors.
- Individuals who hold shares in a company.
- Trustees disposing of qualifying business assets.
It is important to note that BADR cannot be claimed by limited companies as they do not pay CGT, but instead pay corporation tax, which BADR does not provide relief against.
Other Capital Gains Tax reliefs
Depending on your circumstances, there are other CGT reliefs that may help reduce the amount of tax you pay when disposing of certain assets, including:
- Agricultural property relief.
- Reliefs for certain qualifying company investments.
- Transfers into trusts.
In each case, the availability of relief depends on the nature of the asset and how it is being disposed of.
When does Capital Gains Tax not apply?
- Transfers between spouses and civil partners.
Transfers between spouses or civil partners are typically exempt from CGT on a “no gain, no loss” basis, provided you are living together and the transfer is a genuine gift or sale.
However, you may be subject to CGT if:
- You and your spouse or civil partner are separated and not living together at any point during the tax year.
- The asset was transferred as part of a business arrangement.
If your spouse or civil partner later sells the asset, CGT may then apply and will be based on the assets value at the time of it being disposing of.
- Gifts to registered charities.
You will not typically have to pay CGT when gifting assets to a registered charity.
However, CGT may apply if you sell an asset to a charity. In these cases, the gain is based on the amount the charity pays, rather than the market value of the asset.
- Assets inherited after someone passes away.
You do not have to pay CGT when you inherit an asset.
In most cases, any Inheritance Tax (IHT) due is paid by the deceased’s estate before assets are distributed, rather than by the person inheriting them.
CGT may apply if you later sell or dispose of the inherited asset, based on the value of the asset at the time it was inherited and the value of the asset when you sell or dispose of it.
If the asset has increased in value during the time between inheritance and sale, you may be liable for CGT on the gain.
- Personal possessions.
You may need to pay CGT when you sell or dispose of certain personal possessions for £6,000 or more, including:
- Jewellery.
- Paintings or artwork.
- Antiques.
- Coins and stamps.
- Sets of items, such as matching ornaments or collectibles.
You will not usually need to pay CGT if:
- You gift the item to your spouse or civil partner.
- You donate the item to a registered charity.
- The item sells for £6,000 or less.
If you own an item jointly with another individual, the £6,000 threshold will apply to your individual share. This means you may not have to pay CGT if your portion of the sale falls within that limit.
Can I reduce my Capital Gains Tax liability?
While CGT cannot be reduced entirely, there are several practical ways to manage your liability more efficiently. Taking a proactive approach can help you make the most of available allowances and reduce the amount of tax you pay.
Spread disposals across tax years
If you are planning to sell assets with significant gains, it may be worth spreading disposals across multiple tax years.
This may help you to:
- Utilise your £3,000 annual CGT allowance each year.
- Potentially stay within lower tax bands.
- Reduce the overall tax payable across multiple transactions.
Make use of capital losses
If you have assets that have decreased in value, selling them may allow you to realise a capital loss. This means that once the asset is sold, the loss becomes “crystallised” for tax purposes, rather than remaining an unrealised loss while you continue to hold the investment.
These losses can be valuable from a Capital Gains Tax planning perspective, as they may:
- Be offset against gains in the same tax year, helping to potentially reduce your immediate CGT liability.
- Be carried forward to offset gains in future tax years, which can support longer-term tax planning.
- Create planning opportunities where underperforming assets are sold and portfolios rebalanced.
In some cases, assets may be repurchased at a lower value, although certain rules apply to prevent immediate buy-back arrangements.
Transfer assets between spouses or civil partners
In many cases, assets can be transferred between spouses or civil partners without triggering CGT.
This can allow both individuals to:
- Use their own annual CGT allowance.
- Potentially reduce the total tax payable when the asset is sold.
Make use of available reliefs
Understanding which reliefs may apply to you before disposing of an asset can make a meaningful difference to the final tax position, such as:
- Private Residence Relief (PRR).
- Business Asset Disposal Relief (BADR).
- Other asset-specific reliefs.
Small decisions around timing, ownership, and asset management can have a significant impact on your overall Capital Gains Tax liability. Reviewing your position ahead of any disposal can help you plan more effectively and avoid unnecessary tax.
How can Cooper Associates Wealth Management help?
Understanding how CGT may apply to your situation is not always straightforward, especially where multiple assets, reliefs, or timing considerations are involved.
Our financial advisers take a clear, practical approach, helping you look at the bigger picture and assess all the options available to you. We will work with you to understand your current position, future plans, and how potential disposals may impact your overall tax position, ensuring any decisions are made with confidence and clarity.
To discover how we can support you, get in touch today for a fee-free, no-obligation consultation.
*The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
