In our third post of this week, we are looking at Capital Gains Tax, when you pay it, how much it is, and ways to reduce your bill legally.

Capital Gains Tax (CGT) often catches people by surprise. Whether you're selling a second property, some shares, or even a valuable piece of art, CGT might apply and if you’re not prepared, the bill can be bigger than expected.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the profit you make when you sell or dispose of an asset that’s increased in value. It's not the total sale price that’s taxed, just the gain.

For example, if you bought an asset for £10,000 and sold it for £15,000, the gain is £5,000.

What types of assets attract CGT?

• Second homes or buy-to-let properties
• Shares and investments (outside of ISAs or pensions)
• Business assets
• Personal possessions worth over £6,000 (e.g., art, antiques) 

Your main home is usually exempt, thanks to Private Residence Relief, but there are exceptions.

Annual Allowance 2025/26

Everyone gets a tax-free CGT allowance, known as the Annual Exempt Amount.

For the 2025/26 tax year, it’s: £3,000 per person.

This has significantly fallen in recent years. In the 2022/23 tax year, this was £12,300. This reduction has made CGT planning more important than ever. 

If your total gains in the year are below this, you owe no CGT.

How much CGT do you pay?

These rules changed this year and the current rates are as follows:

If part of your gain pushes you into a higher tax band, that portion is taxed at the higher rate. This is best illustrated using the following examples:

Example 1: Sale of shares

Tom sells shares and makes a £12,000 gain. He has no other gains this year and earns £30,000 from employment.

His £3,000 allowance brings the gain down to £9,000

He’s a basic-rate taxpayer, so pays 18% CGT

CGT owed = £1,620 (£9,000 @ 18% = £1,620)

Example 2: Sale of a second property 

Sarah sells a buy-to-let property for £250,000.

She originally bought it for £200,000.

Her gain is: £250,000 – £200,000 = £50,000 gain

She also earns £40,000 a year from employment, so she’s a basic-rate taxpayer.

Less the annual allowance of £3,000 = £47,000 taxable gain

As Sarah earns £40,000 a year from employment, she will pay CGT at the basic rate on some of her capital gain but as the total gain pushes her into the higher-rate tax band, she pays the higher rate on some of this.

The basic rate limit is £50,270. So Sarah has £10,270 of her basic rate band where the capital gain can be taxed at the lower rate of 18%.

£10,270 @18% = £1,848.60

The remaining gain is taxed at 24%:

£47,000 − £10,270 = £36,730 taxed at 24%

£36,730 × 24% = £8,815.20

This means Sarah’s total CGT liability is £10,663.80 (£1,848.60 + £8,815.20)

When and how do you pay CGT?

You report and pay CGT:

• By 31 January following the end of the tax year (for most assets)
• Within 60 days of selling UK residential property

You'll need to report it via your Self-Assessment tax return or through HMRC’s online CGT portal.

Exploring Strategies That Could Lower Capital Gains Tax

Here are some legitimate and effective ways you could reduce CGT:

• Use your annual exemption

Plan sales across different tax years to make use of your £3,000 annual allowance each time. While this isn’t always possible with assets like property or artwork, it’s often achievable with shares or funds.

• Transfer assets to a spouse or civil partner

Transfers between spouses/civil partners are exempt from CGT. You can double your use of allowances and potentially keep gains within the basic rate.

• Invest via tax-efficient wrappers

ISAs are the most familiar tax wrapper, offering completely CGT-free growth.

Another less known wrapper is pensions. Any gains within a pension are free from CGT so it could be worth buying the asset through your pension rather than directly.

There are also lesser known wrappers such as investment bonds which are CGT free depending on their structure.

• Use losses to offset gains

Capital losses can be used to reduce your gains. These can be carried forward to future tax years if unused.

• Use EIS or SEIS investments

Investing in Enterprise Investment Schemes (EIS) can offer CGT deferral, CGT-free growth, or 50% CGT relief on gains reinvested into qualifying companies.

But, these are high-risk investments so aren’t right for everybody.

Final Thoughts

Capital Gains Tax has become more significant for investors and property owners now that allowances have been cut. With a bit of planning and ideally some tailored advice, it’s possible to reduce your liability or even avoid CGT altogether.

Please get in contact if you would like to know more.

This article is for general information purposes only and does not constitute financial, investment, or tax advice. The content is based on current legislation and HMRC guidance as of the 2025/26 tax year, which may be subject to change. Tax treatment depends on individual circumstances and may vary in the future. Not all tax-efficient wrappers or investment strategies mentioned are suitable for every investor. Investments in Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) are high-risk and may not be suitable for all investors. You could lose all of your money. If you are unsure about your financial or tax position, you should seek personalised advice from a qualified professional.