Capital Gains Tax is charged on the profit you make when you sell or otherwise dispose of an asset that has grown in value — shares, a second property, a business, or valuable possessions. Two things determine your bill: how much of the gain is tax-free each year (the annual exempt amount) and the rate charged on what's left. Both have moved substantially over recent tax years, which is why understanding the trend, not just this year's figure, helps you plan.
The annual exempt amount has shrunk sharply
The CGT annual exempt amount — the amount of gains you can make each tax year before any tax is due — used to be a much more generous allowance. Over a short run of tax years it was cut repeatedly, moving from over £12,000 down to £6,000, then to £3,000, where it has broadly stayed since. This matters because it was previously large enough that many modest investors never paid CGT at all; a smaller allowance now pulls in people making relatively ordinary gains, such as selling a small share portfolio or a second-hand let property.
How the allowance works in practice
- It applies per person, per tax year (6 April to 5 April), and cannot be carried forward if unused
- Married couples and civil partners each get their own allowance, and can transfer assets between themselves tax-free before a sale, effectively doubling the exempt amount available on a joint disposal
- It sits on top of, and is separate from, ISA and pension tax wrappers, which shelter gains entirely
CGT rates depend on your income and the asset
CGT isn't a single flat rate. It depends on your total taxable income (which determines whether you're a basic-rate or higher/additional-rate taxpayer) and, until recent reforms aligned things more closely, on the type of asset sold. Broadly:
| Taxpayer band | Most assets | Residential property (non-main-home) |
|---|---|---|
| Basic rate | Lower rate | Higher rate than other assets |
| Higher/additional rate | Higher rate | Higher rate still |
Residential property that isn't your main home (a buy-to-let or second home) has historically been taxed at a higher CGT rate than shares or other assets, reflecting government policy to discourage speculative property investment. Always check the current published rates, as recent Budgets have narrowed — though not eliminated — this gap.
A worked comparison across years
Imagine someone making a £10,000 gain on shares, taxed as a higher-rate payer. A few years ago, with a £12,300 exempt amount, this gain would have fallen entirely within the allowance — no tax due. With today's much smaller exempt amount, only the first slice is covered, and CGT is due on the rest at the higher-rate. This single change in the allowance, with no change in the taxpayer's actual financial behaviour, can turn a nil tax bill into a four-figure one.
Common misconceptions
- "My gains are covered by my Personal Allowance." No — the Personal Allowance applies to income, not capital gains, which have their own separate annual exempt amount
- "I don't need to report anything if I'm below the threshold." You may still need to report a disposal to HMRC even if no tax is due, particularly if the total proceeds (not just the gain) exceed a much higher reporting threshold
- "Losses don't matter if I have no gains this year." Register losses with HMRC anyway — they can be carried forward indefinitely to offset gains in future years
What to do next
Because the allowance is now so much smaller, it's worth reviewing any assets you're planning to sell and considering whether spreading disposals across more than one tax year, using your spouse's allowance, or sheltering assets in an ISA before they grow further could reduce or eliminate a future CGT bill. Check GOV.UK for the exact current-year rates and exempt amount before acting.