Capital Gains Tax (CGT) – allowances, rates and planning considerations

Capital Gains Tax (CGT) applies when you dispose of an asset for more than its cost. Common disposals include the sale of shares, investment property, land, business assets and certain other investments. As with income tax, CGT planning has become more important in recent years as allowances have been significantly reduced and tax rates have increased.

The annual exempt amount (AEA)

For 2025/26, the annual exempt amount (AEA) is £3,000. This will remain unchanged for 2026/27.

• Gains up to the AEA are tax-free
• Gains in excess of the AEA are subject to CGT at the relevant rates
• The AEA cannot be carried forward if unused
• The AEA cannot be transferred between spouses or civil partners

Because the exemption is relatively small, many disposals now give rise to a CGT liability, making careful timing and structuring increasingly important.

CGT rates for 2025/26 and 2026/27

Once gains exceed the AEA, the applicable CGT rate depends on the nature of the asset and the taxpayer’s level of income.

Business Asset Disposal Relief and Investors’ Relief

Where gains qualify for Business Asset Disposal Relief (BADR) or Investors’ Relief, they are taxed at:

• 14% for disposals in 2025/26
• 18% for disposals on or after 6 April 2026

These reliefs are subject to a lifetime limit of £1 million of qualifying gains.

(BADR rates should always be checked carefully, as they have changed recently and are scheduled to increase again.)

Other capital gains

For gains that do not qualify for BADR or Investors’ Relief:

• 18% applies where the gain falls within any unused basic rate income tax band
• 24% applies to gains above the basic rate band

This interaction with income tax means that capital gains planning cannot be carried out in isolation. The level of taxable income in the year of disposal can significantly affect the CGT rate payable.

Transfers between spouses and civil partners

Transfers of assets between married couples and civil partners who are living together are treated as no gain, no loss for CGT purposes.

This means:

• No CGT arises on the transfer itself
• The recipient takes over the original cost and acquisition date of the donor
• Any future gain or loss reflects the combined period of ownership

This rule is extremely valuable for tax planning and allows couples to:

• Utilise two AEAs on a later disposal
• Spread gains between two taxpayers
• Potentially benefit from lower CGT rates if one spouse has unused basic rate band

Gifts to other family members

Gifts to individuals other than a spouse or civil partner are treated as made at market value for CGT purposes, even where no money changes hands.

As a result:

• A capital gain or loss may arise at the time of the gift
• CGT may be payable even though the donor has received no cash

Holdover relief for business assets

Where the asset being gifted is a qualifying business asset (for example, shares in an unquoted trading company), it may be possible to claim holdover relief.

• A joint election is made by the donor and the recipient
• The gain is deferred, rather than eliminated
• The recipient effectively takes over the asset at the donor’s original base cost

Holdover relief can be a powerful succession-planning tool but is only available for certain types of assets and transactions.

CGT and non-residents

Non-residents are not generally subject to UK CGT. However, there is an important exception:

• Disposals of UK immovable property (i.e. UK land and buildings) are subject to UK CGT, even where the owner is non-resident

This includes both residential and commercial property. Reporting and payment obligations apply, often on an accelerated timescale.

Key CGT planning points

Use the annual exempt amount

Because the AEA cannot be carried forward, it is often sensible to:

• Crystallise gains before 6 April, where appropriate
• Spread disposals over more than one tax year, if possible

Even relatively small disposals can benefit from using the exemption.

Transfers to a spouse or civil partner

Where assets are owned by one spouse only, consider whether it is appropriate to transfer all or part of the asset to the other spouse before disposal.

This can allow:

• Use of the recipient’s AEA
• Use of their capital losses, if available
• Access to a lower CGT rate

Transfers must be outright and unconditional to be effective for tax purposes.

Timing disposals where BADR or Investors’ Relief applies

Where a disposal qualifies for BADR or Investors’ Relief, the timing of the disposal is particularly important, as the tax rate is due to increase from 14% to 18% from 6 April 2026.

Bringing forward a disposal into 2025/26 could therefore result in a materially lower tax bill, provided all qualifying conditions are met.

Timing disposals more generally

The timing of any disposal affects:

• The tax year in which CGT is payable
• The rate of CGT, depending on your income position
• The payment date for the tax

CGT is normally payable by 31 January following the end of the tax year in which the disposal occurs (with accelerated deadlines for residential property, as discussed elsewhere).

Worked example – timing matters

Reshmin is a basic rate taxpayer in 2025/26, with £7,000 of unused basic rate band, but expects to be a higher rate taxpayer in 2026/27.

She disposes of some non-residential land, realising a capital gain of £19,000.

Disposal on 31 March 2026 (2025/26)

• AEA: £3,000
• Taxable gain: £16,000

CGT calculation:

• £7,000 at 18% = £1,260
• £9,000 at 24% = £2,160

Total CGT payable: £3,420

This CGT would be payable by 31 January 2027.

Disposal on 30 April 2026 (2026/27)

• AEA: £3,000
• Taxable gain: £16,000

As Reshmin is now a higher rate taxpayer, the entire gain is taxed at 24%:

• £16,000 × 24% = £3,840

This CGT would be payable by 31 January 2028.

Outcome

By disposing of the asset before 6 April 2026, Reshmin saves £420 in CGT, simply by timing the disposal more carefully.

Final thoughts

With the annual exempt amount now very low and CGT rates having increased, capital gains tax planning is more important than ever. Small decisions around timing, ownership and reliefs can have a disproportionate impact on the amount of tax payable.

Where significant gains are involved, or where reliefs such as BADR, Investors’ Relief or holdover relief may apply, professional advice should be taken to ensure that disposals are structured correctly and tax liabilities are minimised wherever possible. Book a 30 minute meeting now