Capital Gains Tax Explained: Rates, Allowances and Reliefs

Capital gains tax is charged on the profit you make when you sell or dispose of an asset that has risen in value, not on the full sale price. For 2026/27 the first £3,000 of gains is tax-free. Above that, gains are taxed at 18% or 24%, depending on your income.

The tax-free allowance that once sheltered £12,300 of gains a year now shelters £3,000. It was cut to £6,000 in April 2023 and to £3,000 in April 2024, and the Commons Library confirms it stays at £3,000 for 2026/27. The tax itself didn’t change. The number of people who cross the threshold did.

That’s the backdrop for capital gains tax explained here. It isn’t a new tax, but it now reaches fairly ordinary sales. A parcel of shares held outside an ISA. A flat let out for a few years. A piece of furniture worth more than anyone expected.

The rules are more forgiving than the headline rates suggest. Losses come off gains. Four reliefs delay or reduce the bill on business assets. Your main home is usually exempt outright.

Where the rules are least forgiving is the reporting, because a UK residential property has to be reported and paid within 60 days of completion rather than by the following January.

Capital gains tax explained: profit is what’s taxed

The tax applies to the increase in an asset’s value between the day you acquired it and the day you let it go. Sell shares you bought for £4,000 for £11,000, and the £7,000 of growth is the figure that matters. The £11,000 isn’t.

Selling isn’t the only way to trigger it. HMRC uses the phrase “disposing of” an asset, which covers several situations:

• You sell the asset outright.
• You give it away to someone other than your spouse, civil partner or a charity.
• You swap it for something else.
• You transfer it to another owner.
• You receive compensation for it, for example an insurance payout.

Each counts as a disposal even though no ordinary sale took place. Where an asset is jointly owned, you’re taxed on your share, not the whole.

Chargeable assets, and what is exempt from CGT

The assets you pay on are known as chargeable assets. They include:

• Property that isn’t your main home, such as a buy-to-let, a second home or land.
• Your main home, but only if you’ve let it out, used part of it for business, or it sits on very large grounds.
• Shares held outside an ISA or a PEP.
• Business assets, which are covered further down.
• Personal possessions worth £6,000 or more, apart from your car.

Knowing what is exempt from capital gains tax matters just as much. GOV.UK lists ISAs and PEPs, UK government gilts and Premium Bonds, and betting, lottery or pools winnings as gains you don’t pay on. Gifts to a charity sit outside it too.

Gifts between spouses and civil partners work slightly differently. There’s no tax when you give or sell an asset to your husband, wife or civil partner. Two things break that: separating and not living together at all in the tax year, or handing over goods for their business to sell on.

If they sell it later, their gain is measured from what you originally paid, so the tax is deferred rather than cancelled.

Inherited assets follow their own path. Inheritance tax on the estate is usually settled before anything reaches you, and capital gains tax only arises if you later dispose of what you inherited.

One point in older guides is worth correcting: assets held overseas are not automatically exempt. HMRC’s position is that you may still owe capital gains tax on an asset abroad.

Non-residents are a separate case. They pay on UK property and land, residential or commercial. Other UK assets are caught only on returning within five years of leaving, or where the shares are in a company whose value is mostly UK land, which HMRC labels “UK property rich”.

The £6,000 possessions rule caps your gain

The threshold is easy to misread. It doesn’t just decide whether you pay, it also caps how much of the gain is chargeable.

Buy an antique writing desk for £2,000, sell it for £8,000, and the raw gain is £6,000. Chattels rules limit it. GOV.UK subtracts £6,000 from the proceeds, multiplies by 1.667, then takes whichever is lower:

1. £8,000 minus £6,000 leaves £2,000.
2. £2,000 multiplied by 1.667 gives £3,334.
3. £3,334 is lower than the £6,000 raw gain, so £3,334 is the chargeable gain.

That single step nearly halves the taxable figure. Sell a possession for less than £6,000 and there’s no chargeable gain at all.

Capital gains tax rates depend on your income

There are two main rates, and which one applies isn’t decided by the asset alone. Gains sit on top of your taxable income, so the split depends on how much of your basic rate band is still free.

HMRC’s guidance on capital gains tax rates and how they are worked out sets out the order plainly. Work out your taxable income and your total gains, deduct the annual exempt amount, then add what’s left to your income. Anything still inside the basic rate band is taxed at 18%, anything above it at 24%.

A worked example from HMRC makes the point. On taxable income of £20,000 and gains of £52,600, you deduct £3,000 to leave £49,600.

Adding that to £20,000 takes you past the £37,700 basic rate band, so £17,700 is taxed at 18% and £31,900 at 24%, producing a bill of £10,842. The same gain sitting entirely inside the band would cost considerably less.

For 2026/27 the rates work out as follows:

• Gains falling inside your basic rate band are taxed at 18%.
• Gains falling above the basic rate band are taxed at 24%.
• Residential property follows the same 18% and 24% split as everything else.
• Qualifying gains under Business Asset Disposal Relief are taxed at 18% for disposals from 6 April 2026.
• Trustees and personal representatives pay 24%.

Shares and other assets rose to meet the property rates at the October 2024 Budget, so the old split is gone. Two exceptions remain: Business Asset Disposal Relief has its own rate, and carried interest moves under income tax and National Insurance from 6 April 2026.

The capital gains tax annual exempt amount is £3,000 per person for 2026/27, with £1,500 for most trusts. This capital gains tax allowance resets each 6 April and doesn’t roll over. How it interacts with losses, with a second person’s allowance, and with the reporting thresholds is set out in full there.

Working out whether you owe anything

The calculation runs in a fixed order, and following it in sequence is the difference between a clean return and a corrected one:

4. Work out the gain on each asset you disposed of during the tax year, using your share if it was jointly owned.
5. Add those gains together.
6. Deduct any allowable losses.
7. Deduct the £3,000 annual exempt amount.
8. Add what’s left to your taxable income to see how much falls at 18% and how much at 24%.

Losses are the step people skip. A loss on a chargeable asset can be reported to HMRC and set against gains in the same tax year, and unused losses from earlier years come off anything still above the allowance.

One trap is worth knowing even when you owe nothing. If you’re registered for self assessment, gains must be reported when the total you sold the assets for came to more than £50,000, whether or not tax is due.

How to pay capital gains tax on time

There’s no bill in the post. Working out whether you’ve crossed the allowance is your job, and the reporting route depends on what you sold.

For UK residential property completing on or after 27 October 2021, the deadline is 60 days from completion, not exchange. The report goes through a Capital Gains Tax on UK property account, with an estimate of the tax paid at the same time. Non-residents report every UK property and land disposal this way, even with no tax to pay and even if they already file a self assessment return.

For everything else there are two options. Gains can be declared on a self assessment tax return covering the year that follows the disposal. The alternative is HMRC’s real time service, open to UK residents where the gain isn’t on UK residential property. That route means reporting by 31 December in the tax year after the gain, and paying by 31 January.

Filing through self assessment for the first time brings three dates. Registration closes on 5 October following the end of the tax year, paper returns are due by 31 October, and online returns by 31 January. Register after 5 October and HMRC issues a different filing date, three months from the letter, though the tax is still due on 31 January.

Miss a self assessment deadline and the late filing penalties follow a fixed ladder:

• £100 automatically, the moment the return is late.
• £10 a day after three months, capped at £900.
• 5% of the tax due or £300, whichever is greater, at six months.
• The same charge again at twelve months.

Late payment is billed separately. That runs at 5% of the unpaid tax at 30 days, six months and twelve months, with interest on top.

The property deadline sits under its own rules. HMRC states that interest and a penalty can apply where a disposal is not reported and paid on time, but it does not publish the amounts alongside its main capital gains guidance.

Check the current position on reporting and paying capital gains tax rather than assuming the figures match the self assessment ladder above. Day 61 is a poor moment to start looking.

Records are what make the return straightforward. HMRC asks you to keep receipts, bills and invoices showing:

• The date and the amount you paid for the asset.
• Any additional costs: professional fees, stamp duty, improvement costs or valuations.
• The amount you received for it, including instalments or compensation.
• Contracts for buying and selling, from a solicitor or stockbroker.

An individual keeps them until a year past the self assessment deadline; a business, five.

Capital gains tax for sole traders and partners

The principle doesn’t change for business assets, only the list of what counts. The charge falls on sole traders working for themselves and on people in a business partnership. A limited company sits outside it entirely, since its disposals are caught by corporation tax.

The business assets that can produce a chargeable gain are:

• Land and buildings.
• Your business’s reputation, which HMRC’s manuals treat as goodwill.
• Fixtures and fittings.
• Registered trademarks.
• Plant and machinery, a digger being HMRC’s own example.

Certain costs come off the gain before the rate applies: fees for valuing or advertising, the cost of improvements, and VAT where you can’t reclaim it. Repairs aren’t improvements and don’t qualify.

Two costs are specifically excluded: interest on a loan taken to buy the asset, and any cost you’ve already claimed as a business expense.

Capital gains tax reliefs can cut the bill

Four reliefs sit in HMRC’s guidance on reliefs for business assets, and none of them applies automatically. Each has conditions attached.

Business Asset Disposal Relief charges a reduced rate on qualifying gains when you sell all or part of a business. That rate is 18% for disposals from 6 April 2026, having been 14% in 2025/26 and 10% before April 2025. Relief is capped at £1 million of qualifying gains across a lifetime, counting every earlier claim. Qualifying on a business sale means two years as a sole trader or business partner, owning the business throughout.

Shares are stricter. You need two years as an employee or office holder, in a company whose main activities are trading, holding 5% or more of the shares and the same again of the voting rights.

Business Asset Rollover Relief delays the tax when you replace a business asset. The replacement must be bought in the three years after the old asset goes, or the year running up to it, with trading the only use either is put to.

Incorporation Relief postpones the charge when a business becomes a company. Everything must move across, all assets bar cash, with shares coming back in exchange.

Gift Hold-Over Relief means no tax when you give away a business asset you used for trading as a sole trader or partner. The person receiving it pays when they sell.

Two others sit outside that list. Investors’ Relief covers outside investors in unlisted trading companies, at 18% from 6 April 2026 with its own £1 million lifetime cap. Selling your main home usually attracts Private Residence Relief, which is why most home sales produce no bill at all.

Before you sell

Capital gains tax turns on three things: whether the asset is chargeable, how much of your basic rate band is free once your income is counted, and which deadline applies to the way you sold it. Get those three right and the rest follows.

Work out the gain on each disposal, deduct losses, then deduct the £3,000 allowance before applying 18% or 24%. If a UK residential property is involved, the 60-day clock starts at completion. If a business asset is involved, check the four reliefs before assuming the standard rate applies.

Anyone selling a rental property can find the specific position set out in the landlord capital gains tax guide.

Key takeaways

The points that matter most when a disposal is on the cards:

• Capital gains tax is charged on the growth in an asset’s value, not on the price it sold for.
• The annual exempt amount is £3,000 per person for 2026/27, it resets each 6 April, and it can’t be carried forward.
• Gains are taxed at 18% inside your basic rate band and 24% above it, once the gain is added to your taxable income.
• UK residential property must be reported and paid within 60 days of completion; other gains go through self assessment or the real time service.
• Allowable losses reduce gains in the same year, and unused losses from earlier years come off anything still above the allowance.
• Business Asset Disposal Relief charges 18% on qualifying gains from 6 April 2026, up to a £1 million lifetime limit.

Common capital gains tax questions

The answers below summarise HMRC guidance published on GOV.UK and apply to the 2026/27 tax year.

Do you pay capital gains tax on gifts to family members?

Gifts to family members are usually chargeable, because giving an asset away counts as disposing of it. The exemption covers only your husband, wife or civil partner, and gifts to charity. Children, parents, siblings and grandchildren all fall under the normal rules.

Because no money changes hands, the gain is worked out using the asset’s market value on the day you give it away rather than a sale price. HMRC treats close relatives as “connected people”, which also means you can’t deduct a loss on a gift to a family member unless you’re offsetting a gain from that same person.

What value do you use for an asset you inherited?

The figure you need is the market value at the date of death, not what the person who died originally paid. HMRC’s manuals set this out at CG31140: you are treated as acquiring the asset on the day of death, at its value on that day. Everything the asset gained during their lifetime falls away.

Where a value was formally agreed for inheritance tax, that agreed figure is the one that carries over. This is the point at which a probate valuation earns its keep, because reconstructing a figure years later is considerably harder than filing the one you were given at the time.

What if you sell a personal possession for less than £6,000?

Selling a personal possession for less than £6,000 produces no chargeable gain, but it can still produce a loss you are allowed to claim. The way that loss is calculated is counterintuitive.

GOV.UK’s instruction is to work out the loss using £6,000 as the amount you sold it for, rather than the price you actually got. Sell something you paid £9,000 for at £3,000, and the allowable loss is £3,000, not £6,000.

Report it in your tax return in the usual way. Joint ownership works on the same threshold: each owner is exempt on the first £6,000 of their own share.

What if you’ve lost the records for something you’re selling?

Losing your records doesn’t remove the obligation to file, so HMRC’s instruction is to recreate them. That applies where records have been lost, stolen or destroyed and can’t be replaced: you must try to rebuild them from whatever evidence you can find.

If you end up filing on recreated records, the return has to show which figures are estimated and which are provisional.

An estimated figure is one you want HMRC to accept as final. A provisional figure is one you’ll update once the actual number surfaces. Flagging them correctly is what separates a reasonable reconstruction from an inaccurate return.

Do you pay capital gains tax when you sell a car?

Cars sit outside capital gains tax altogether, whatever the sale price and whatever the gain. That holds for a classic or vintage car as much as a runaround, which catches out anyone assuming a six-figure sale must be chargeable somewhere.

The reason is the wasting asset rule. HMRC’s manuals treat anything with a predictable life of 50 years or less as a wasting asset, and machinery is always treated that way whatever its actual life turns out to be. Motor vehicles count as machinery, so they escape the charge that would otherwise land on a possession sold for £6,000 or more.

Two conditions cut across it. Where capital allowances were or could have been claimed, as with a van used in a business, the exemption falls away. A loss on a wasting chattel is not allowable either, so the rule runs both ways.