As of the 2026–27 tax year the annual exempt amount for individuals is £3,000. Most disposals of chargeable assets are taxed at 10% for basic-rate taxpayers and 20% for higher-rate and additional-rate taxpayers; gains on residential property attract higher rates — 18% and 28% respectively. Here’s what that means, which disposals count, how to figure out your gain, what reliefs can lower your bill, and how to handle reporting and payment. We offer clear, step-by-step tips on calculating allowable costs, using your annual exempt amount, claiming key reliefs like private residence and hold-over relief, and handling tricky cases like trusts, estates, non-residents, and shared property. It also explains how to report and pay your tax—when to file self-assessment, when special property reporting rules kick in, and how losses and reliefs work together—helping you avoid surprises when planning sales. Read on for checklists and common pitfalls that often trip up sellers and their advisers.
What is Capital Gains Tax and who pays it?
Capital Gains Tax (CGT) is the tax charged on the profit when you sell or otherwise dispose of certain kinds of assets. It's not a tax on the sale price; it's a tax on the gain — the difference between what you paid for the asset and what you received for it, after allowable deductions. CGT applies to many assets, including shares (outside an ISA or pension), investment funds, business assets, and most land and buildings that aren’t your main home. Personal possessions such as cars are typically exempt from CGT.
Not everyone who sells an asset pays CGT. You only pay if your total gains in a tax year — after deducting allowable losses and applying reliefs — exceed the annual exempt amount (the AEA). As noted above, for 2026–27 the AEA for most individuals is £3,000. The tax you pay depends on what you sold and your income tax band: for most chargeable assets the rates are 10% and 20%; for residential property they're 18% and 28%.
Some disposals are entirely exempt. The most familiar example is the main residence: a home you have occupied as your only or main residence will usually qualify for private residence relief, removing the gain from charge.
Pensions, ISAs and national savings held in certain wrappers are also outside CGT. Trusts and companies face different rules.
Companies, for example, pay corporation tax on chargeable gains and don't use the individual AEA.
Responsibility for reporting and paying CGT falls on the person making the disposal. If the seller is an individual, the liability will usually appear on their self-assessment tax return. However, some disposals — notably certain UK residential property disposals by non-residents — fall into a faster reporting and payment regime. We cover reporting routes and deadlines in depth below. For now, bear in mind that whether you are resident, non-resident, an executor, a trustee or a company changes the way the tax is worked out and reported.
CGT is intertwined with income tax because the rate you pay depends on where the gain sits relative to your taxable income. That means timing a disposal across tax years can materially affect the rate applied to the gain. Tax planning often focuses on using the annual exempt amount intelligently, offsetting losses and timing disposals so gains are taxed at the lower rates where possible.
Key 2026 figures: allowance, rates and how they interact
Here are the key numbers for 2026 that you should remember. The annual exempt amount for individuals is £3,000 for 2026–27. For the purpose of calculating tax, most gains are charged at 10% for gains that fall within your basic-rate band and at 20% for amounts that fall into the higher- or additional-rate band. Gains on residential property are taxed at 18% for basic-rate and 28% for higher-rate taxpayers.
How does that work in practice? The tax system treats your taxable income and chargeable gains together when deciding which rate applies. You first take your taxable income for the year (salary, dividends, interest after personal allowances). If there's space within the basic-rate band after income is taken into account, some or all of your gain may be taxed at the lower CGT rate. Once income plus gains exceed the basic-rate threshold, the remainder of the gain is taxed at the higher CGT rate.
In other words, your tax rate depends not just on your income bracket but on how much space you have left in the basic-rate band. That means a modest gain can push an otherwise basic-rate taxpayer into the higher-rate band for the year, or part of a gain can be taxed at 10% and the rest at 20% (or 18%/28% for residential property).
Executors and trustees get special treatment for the annual exempt amount. Personal representatives of a deceased person can usually claim the full AEA during the administration period (from death until assets are passed on), and this can be an important planning consideration for estates with chargeable assets. Similarly, certain trustees have different, lower exempt amounts.
Remember that companies don't use the individual annual exempt amount; they calculate gains within the corporation tax framework. Non-residents who dispose of UK residential property are liable to CGT and, in most cases, can use the individual AEA. The practical consequence of these rules is the importance of knowing your residency status, the nature of the asset and whether reliefs such as private residence relief apply before you sign a contract or complete a sale.
How to calculate your gain: step-by-step with examples
Calculating a capital gain is methodical. The basic arithmetic is simple: disposal proceeds minus allowable costs equals the chargeable gain. Allowable costs include what you paid for the asset, costs of acquiring it (legal fees, stamp duty in certain cases), costs of improvement (not repairs or maintenance) and costs of disposal such as estate agents’ and legal fees. If you inherited the asset, the starting point is its market value at the date of death, not the original purchase price.
Step 1: Establish disposal proceeds. This is the gross amount you received. For disposals that aren't straightforward sales — for example, gifts or transfers — HMRC’s rules for valuation apply. If you gifted an asset to someone other than your spouse, the disposal is usually treated as being at market value for CGT purposes.
Step 2: Work back to allowable acquisition and enhancement costs. Keep invoices for major improvements (an extension, a new roof) because these can be added to the base cost. Routine maintenance and repair costs aren't allowable. For shares and funds, brokers’ fees and purchase commissions are allowable deductions. If you qualify for reliefs such as private residence relief, some or all of the gain may be eliminated; see below.
Step 3: Subtract losses. If you made capital losses in the same year, you deduct them from gains.
Unused losses can be carried forward to set against future gains, but you must claim them to use them. Where you have both gains and losses in mixed asset classes, you offset within the same tax year first, then carry forward net losses.
Step 4: Apply the annual exempt amount. For 2026–27 that amount is £3,000. You can use the AEA against any gain you choose, but there's a tactical element: you can apply the exemption to the portion of gains that are taxed at the highest rate to get the greatest saving. That is, if part of your gain is taxed at the higher rate, using the AEA there reduces tax at the higher percentage.
Step 5: Calculate tax using the banded approach. Add the taxable gain (after AEA and losses) to your taxable income to see how much of the gain sits in the basic-rate band. Apply the lower CGT rate to that portion and the higher rate to the rest. For a residential property gain, use the 18%/28% scale. Keep in mind reliefs such as entrepreneurs’ relief (now business asset disposal relief) or holdover relief for gifts of business assets may change the effective rate or defer taxation.
Example (illustrative): You realise a non-residential gain of £50,000. Your taxable income uses half the basic-rate band, leaving room for £15,000 of gain at 10%. You use your £3,000 AEA against the portion taxed at the higher rate. So £15,000 is taxed at 10%, the remaining £32,000 at 20% (after applying the AEA). That arithmetic governs the final tax due. The order in which you apply AEA and band space can affect the bill, so work through scenarios or ask a tax adviser for larger disposals.
Reporting and paying: timelines, self-assessment and the special property regime
Reporting and payment procedures differ by the asset type and seller’s residency. For many disposals, individuals report gains on their self-assessment tax return. The return for a tax year is submitted and any balancing payment is due by 31 January following the end of that tax year. You may also have to make a payment on account for the following year depending on the size of the bill. That remains the standard route for most taxpayers selling assets other than UK residential property.
There is a faster route for disposals of UK residential property that give rise to a liability. Sellers who are non-resident and dispose of UK residential property generally must report and pay the CGT due within 30 days of completion of the sale. The 30-day process requires a digital submission to HMRC and immediate payment for the tax that arises. This regime was introduced to accelerate collection and applies regardless of whether the seller is obliged to complete a self-assessment return. It's crucial for vendors and their conveyancers to account for this timing when agreeing completion dates.
UK resident sellers should normally report residential property gains on self-assessment, but there are circumstances where the shorter reporting window also applies. Where someone isn't required to file a self-assessment return, but makes a disposal of UK residential property that produces a CGT charge, they must use the online reporting service and pay within the same tight time frame. Whether you need to use the 30-day service or simply declare the gain on the annual tax return depends on your personal filing history and the timing of the disposal.
For trustees, executors and companies, the reporting and payment mechanics differ. Executors may have administration period allowances when dealing with estate assets; trustees may have their own return periods and lower annual exempt amounts in certain cases. Companies don't use self-assessment but calculate gains within corporation tax returns and pay under corporation tax payment schedules.
Penalties and interest apply for late reporting or payment. Because property transactions often involve lawyers and agents, vendors should ensure their advisers know whether a CGT liability is likely and who will file the 30-day return if required. Keep completion statements and legal invoices — HMRC may ask for proof of costs used to reduce the gain. Where there's any doubt, tax agents can register for HMRC’s digital services and submit returns on a client’s behalf, but formal responsibility for accuracy rests with the taxpayer.
Reliefs, exemptions and common planning opportunities
Reliefs can greatly reduce or eradicate a chargeable gain. Private residence relief (PRR) is the most significant for homeowners: if an asset has been your only or main residence throughout the period of ownership, you will normally pay no CGT on any gain. There are technical rules on periods of absence, the final-period exemption (which covers a set period at the end of ownership), and on furnished lettings. Since the restriction of letting relief, a landlord will only get that relief in narrowly defined circumstances, usually when they occupied the property with the tenant.
Hold-over relief lets you defer gains when you give away qualifying business assets or agricultural property. Rather than a chargeable gain arising immediately, the person who receives the asset inherits the base cost so tax is deferred until they dispose of it. This relief is particularly useful in succession planning and for gifts within family businesses. It removes an immediate cash tax burden but doesn't eliminate the tax entirely — it merely moves the charge to a later owner.
Entrepreneurial reliefs — under various names over time — aim to reduce tax on disposals of business assets for qualifying individuals, often at a lower CGT rate and subject to lifetime limits. These reliefs have been tightened and reworked over the years; if you run a trade or sell business shares, check the current qualifying conditions. Losses are another important planning instrument. If you have realised losses in one tax year, you can set them against gains in the same year and carry forward unused losses to reduce future gains. You must claim carried-forward losses; they're not automatic.
Spouses and civil partners can transfer assets between themselves without an immediate CGT charge. That means transfers prior to sale can shift the gain into the partner with the lower income tax rate or spare annual exempt amounts.
Where practicable and genuine, this can be a perfectly legitimate planning tool, but it must be done well before disposal and with proper documentation. Beware artificial schemes that attempt to exploit transfers in and out of partnerships or trusts solely for tax advantage; HMRC applies anti-avoidance rules where arrangements lack commercial substance.
Timing disposals across tax years is a common and effective tactic. Because the AEA applies to each individual each year and because the rate depends on remaining basic-rate band space, selling part of a holding in one year and the remainder in the next can reduce tax. However, liquidity needs, market risk and transaction costs must be weighed against tax savings. For large or complex disposals, get professional advice; reliefs can be technical and small mistakes are costly.
Special situations: non-residents, trusts, estates and jointly owned assets
Non-residents are subject to CGT in respect of disposals of UK residential property. In most cases non-residents can use the individual annual exempt amount for UK residential disposals. Non-residency for tax purposes is a fact-sensitive area that depends on the statutory residence tests; a short spell abroad doesn't necessarily change liability. Since rules have evolved, anyone planning to sell UK property after a period of residence or non-residence should confirm the position before agreeing heads of terms.
Trusts face different treatment. Trustees of most trusts have a separate, generally lower annual exempt amount and are taxed under trust rules which can involve rates that are effectively higher than individual bands. Certain trusts for disabled persons may qualify for the full individual AEA. Settlements, varying trustees and distributions from trusts have their own reporting obligations and timing for CGT. Where trust assets include property or business interests, trustees should maintain careful records of costs and improvements because these feed into the gain calculation.
Estates and personal representatives are another special case. When someone dies, certain reliefs apply and the personal representative may be able to claim the annual exempt amount during the administration period. The asset’s base cost for beneficiaries is generally the market value at the date of death, which often creates a step-up that reduces or eliminates historic gains. But estates with chargeable gains during administration still need careful handling — executors must decide when to sell, how to allocate costs and whether to elect for the administration period relief rules.
Jointly owned assets raise practical questions about who reports the gain and how to split it. For jointly owned property held as joint tenants, the gain is generally split 50/50 unless there's evidence of a different beneficial ownership.
For tenants in common, the split follows beneficial shares. Each owner should calculate their portion of the gain, apply their own AEA and report their share. Disputes over ownership percentages are common and can lead to separate tax bills; get legal clarity on beneficial interests before disposing of jointly owned assets.
Finally, incoming migrants and emigrants should consider 'rebasing' issues and the availability of reliefs. Arriving in the UK can bring future worldwide assets into the UK tax net; leaving the UK brings exit charge considerations in particular cases. Professional advice is essential where cross-border elements or complex ownership structures exist; they can affect not only the CGT outcome but the reporting steps and deadlines too.
Record-keeping, common pitfalls and a practical checklist
Good records make CGT straightforward. Keep purchase contracts, completion statements, invoices for improvements, estate agent and solicitor bills, and any other paperwork that supports the costs used to reduce a gain. For inherited assets keep the probate valuation and for gifted assets retain evidence of the date and value used. For shareholdings, keep broker statements showing purchase and sale dates and any corporate actions that affect the base cost.
Common pitfalls include: assuming all improvements count (they don’t); forgetting to deduct selling costs; misinterpreting the final-period exemption for main residences; failing to claim carried-forward losses; and missing the 30-day reporting window for certain property disposals. Another trap is poor record keeping when assets are held within mixed-use properties or where parts of a property have been converted; apportionment rules can be tricky and HMRC will ask for supporting calculations.
Practical checklist before you sell:
- Estimate the likely gain and which rate(s) will apply by adding projected gain to taxable income for the year.
- Gather proof of acquisition costs, dates and any improvement invoices.
- Check residency status and whether the 30-day residential property reporting regime applies.
- Consider transfers between spouses or timing across tax years to make best use of AEAs and band space.
- Decide whether to claim reliefs such as private residence relief, hold-over relief or any business reliefs and ensure you meet the qualifying conditions.
- Confirm who will submit returns and pay tax — you, your solicitor, or an agent — and set reminders for all deadlines.
When in doubt, request professional advice for complex situations: disposals involving trusts, partnerships, cross-border elements or substantial gains. An adviser can help model different timing scenarios, check relief eligibility and draft the narrative required by HMRC for claims. The fee for good advice often pays for itself if it reduces or defers tax by a meaningful amount. Keep records for at least the statutory period — HMRC can open inquiries years after a return is filed if there's reason to investigate.
Related Articles
Capital Gains Tax needn’t be a mystery. Memorise the headline numbers — the annual exempt amount (£3,000 for 2026–27) and the 10%/20% and 18%/28% rates — then work through the calculation methodically: proceeds, allowable costs, losses, the AEA and the banded rate test. The most valuable levers are timing a disposal across tax years, using spousal transfers where appropriate, and claiming reliefs such as private residence relief and hold-over relief when legitimate. Practical discipline wins: keep records, run the arithmetic before agreeing completion dates, and check whether the special 30-day reporting rule for certain residential property disposals applies. For trustees, executors, non-residents and business owners the rules differ enough that targeted advice is usually justified. I think the most important factor here is timing — control the date of disposal and the use of the annual exempt amount, and you can often lower the effective tax rate materially.
This article was created with AI assistance.
