The Capital Gains Tax allowance, also called the Annual Exempt Amount, is the amount of profit you can make from selling or disposing of assets without paying Capital Gains Tax. This guide explains how the allowance works, how to calculate a gain, the main reliefs that can reduce the tax, and how capital gains are reported to HMRC.
- The shrinking Annual Exempt Amount significantly widens the CGT net, so routine share or property disposals now need active tax planning rather than ad‑hoc decisions.
- Losses must be reported within four years or they lapse, potentially wasting a valuable tool for keeping future gains within the tax‑free allowance.
- Using spousal transfers and carefully timing disposals across tax years can shift gains into lower tax bands and effectively double the household allowance.
- Gifts of shares or other assets to family are treated as disposals at market value, so poorly planned gifting can generate unexpected CGT bills.
What is the Capital Gains Tax Allowance?
The Capital Gains Tax (CGT) allowance means that you only pay Capital Gains Tax on the amount of gain above the set threshold when assets or shares are sold. CGT applies to the profit, not the full sale price. The allowance is £3,000 for individuals and personal representatives. Trustees have a lower allowance of £1,500. This continues a downward trend from £12,300 in 2022/23 and £6,000 in 2023/24. The reduced allowance brings many more shareholders and business owners into the Capital Gains Tax system.
The Annual Exempt Amount applies to your total gains across the whole tax year. If you sell multiple assets, including limited company shares and property, the same £3,000 allowance applies to the combined amount. Shareholders can use the allowance when selling or gifting shares. Understanding the latest CGT changes and available reliefs is important if you are considering selling shares, property, cryptocurrency, or other significant assets.
The figures in this guide apply to the 2026 to 2027 tax year and are updated for each new tax year.
Capital Gains Tax allowances and rates are set by the government and can change from one tax year to the next. Any changes are usually announced by the Chancellor at the annual Budget, which normally takes place in the autumn. Most changes take effect from the start of the new tax year on 6 April, although some, such as changes to the main rates, can apply from the date of the Budget itself.
What Do You Pay Capital Gains Tax On?
You may have to pay CGT when you dispose of:
- Property that is not your main home, such as a buy-to-let, second home, or commercial premises.
- Your main home, in limited circumstances, for example, if part of it has been let out, used exclusively for business, or it is unusually large.
- Any shares that are not held in an ISA or similar tax-sheltered account, including shares in listed companies and shares in a private limited company.
- Business assets, such as land, buildings, goodwill, or equipment used in a trade. This is particularly relevant when you sell or wind up a business, or dispose of shares in your own trading company.
- Personal possessions (chattels) worth £6,000 or more, such as art, antiques, jewellery or collectables, but not your car.
- Cryptoassets, such as cryptocurrency or tokens. These are treated as chargeable assets rather than currency, so gains on disposal can be taxable.
What Are the Capital Gains Tax Rates?
Basic rate taxpayers pay 18% on gains from shares and business assets. Higher rate and additional rate taxpayers pay 24% on the same types of gains. These rates apply to most assets, including limited company shares.
| Tax Status | Capital Gains Tax Rate |
|---|---|
| Basic rate taxpayer | 18% |
| Higher or additional rate taxpayer | 24% |
| Business Asset Disposal Relief | 18% (up to £1 million) |
Since 30 October 2024, gains on residential property are taxed at these same main rates. You can confirm the latest figures against the official rates and allowances published by HMRC.
How Do I Calculate the Taxable Gain?
Check the sale date
The date of disposal decides which tax year applies. The UK tax year runs from 6 April to the following 5 April. A disposal on 5 April therefore falls into one tax year, while a disposal the next day, on 6 April, falls into the next.
Calculate the gross gain
Use the formula: disposal proceeds minus original purchase cost. If the asset was gifted, use the market value at the date of the gift.
Deduct allowable costs
You can deduct certain costs when working out your gain on the sale of shares or assets, including:
- Solicitor fees
- Stamp Duty when acquiring shares
- Broker fees for buying or selling shares
- Improvement costs for property
- Professional valuation fees
Apply available reliefs and allowances
Offset any losses before applying the Annual Exempt Amount. Losses from the same tax year must be used in full, while losses carried forward from earlier years are used only to bring your remaining gains down to the £3,000 allowance, so it is not wasted. The remaining amount is your taxable gain.
Selling limited company shares is one of the most common triggers for Capital Gains Tax for business owners. Share disposals may occur during a business sale, restructuring, or transfer of ownership. It is important to consider that limited companies pay Corporation Tax on their own gains, while shareholders pay Capital Gains Tax on their personal gains from selling shares. Understanding this difference is key when planning a business exit.
Business Asset Disposal Relief (BADR) is a key relief for shareholders selling their companies. The rate is 18% on the first £1 million of qualifying gains. To qualify for BADR, you must be an employee or officer, hold at least 5% of the shares, and meet a two-year ownership requirement.
Many people are surprised to learn that gifting is treated as a disposal for Capital Gains Tax. If you give shares to a child, friend, or connected person, HMRC treats it as if you sold the shares at market value.
Managing Losses and Reporting to HMRC
Capital losses can occur when you sell an asset for less than its original cost. To use the loss against future gains, you must report it to HMRC within four years of the end of the tax year in which it arose. Recording losses protects your future tax planning options.
Reporting deadlines depend on the type of asset. UK residential property disposals must be reported and paid within 60 days. Gains on shares or business assets are usually reported through Self Assessment. The payment deadline is 31 January following the end of the tax year.
Reporting capital gains may also be required when there is no tax to pay. If your total disposal proceeds exceed £50,000, you must report the gains even if they are covered by the allowance.
A trusted accountant can help you report losses on time and handle your Self Assessment.
How Can I Reduce Capital Gains Tax?
There are several ways to reduce your Capital Gains Tax bill, including:
1. Maximise your household allowance through spousal transfers
Transfers between spouses and civil partners incur no CGT, allowing you to effectively double your combined annual allowance. This is a particularly powerful strategy if one partner occupies a lower income tax bracket, ensuring gains fall within the basic rate band.
2. Use capital losses from previous years
Capital losses, whether from the current tax year or carried forward from previous periods, can substantially reduce your taxable gains. Ensure losses are formally reported to HMRC within four years of the tax year in which they arose to preserve your right to use them against future gains.
3. Claim Business Asset Disposal Relief on qualifying sales
If you are selling shares in your own trading company or disposing of a business interest, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) can reduce the rate on your gain. It applies an 18% rate on qualifying gains up to a £1 million lifetime limit. For higher and additional rate taxpayers, this is below the standard 24% rate, provided you meet the ownership and employment requirements.
4. Carefully time asset disposals
Consider the timing of sales carefully, especially if your income is expected to fluctuate across tax years. Deferring a disposal into the next tax year, or accelerating one into the current year, can shift gains into a lower tax bracket and maximise use of your allowance before rates or thresholds change.
5. Use your full annual exempt amount
The £3,000 allowance cannot be carried forward; it expires at the end of each tax year. If your total gains fall below this threshold, you owe no CGT. Plan smaller disposals strategically throughout the year to ensure you are not leaving this valuable exemption unused. In other words, ‘use it or lose it’.
Capital Gains Tax Examples
Example 1: Limited Company Share Disposal (as a basic rate taxpayer)
Scenario: You sell shares in your private limited company on 15th May 2026. Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £35,000, and your taxable gains from the share sale are £18,500.
Calculation: First, deduct the Capital Gains Tax-free allowance from your taxable gain. The allowance is £3,000, which leaves £15,500 to pay tax on.
Add this to your taxable income. Because the combined amount of £50,500 is more than £37,700 (the basic rate band), you will pay Capital Gains Tax at 18% on £2,700 and then 24% on £12,800.
This means you will pay £3,558 in Capital Gains Tax.
Example 2: Property Disposal with Capital Losses (as a higher rate taxpayer)
Scenario: You sell a residential property on 10th August 2026 and realise a gain of £65,000. However, you also made a capital loss of £8,000 from selling shares earlier in the year. Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £55,000.
Calculation: First, offset your capital loss against your gain: £65,000 – £8,000 = £57,000.
Next, deduct the Capital Gains Tax-free allowance from your remaining gain. The allowance is £3,000, which leaves £54,000 to pay tax on.
Add this to your taxable income. Because the combined amount of £109,000 is more than £37,700 (the basic rate band), you will pay Capital Gains Tax at 24% on all £54,000 (as your total income already exceeds the basic rate threshold).
This means you will pay £12,960 in Capital Gains Tax.
Final Words
The reduced Capital Gains Tax allowance means more people now face CGT when selling or gifting assets. Understanding the rules and available reliefs helps you plan ahead and avoid unnecessary tax.
Tags: Limited Company, Tax
