Everything you need to know about capital gains tax on investments uk in the UK.
Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. In the context of investing, it applies when you sell shares, funds, bonds, investment properties or other chargeable assets for more than you originally paid for them. The tax is levied on the gain—not the total sale proceeds.
CGT is payable by individuals, trustees and personal representatives of deceased persons. Companies pay corporation tax on their gains rather than CGT. It is important to understand how CGT works because failing to account for it can significantly erode your investment returns over time.
For the 2025/26 tax year, the annual CGT exemption (Annual Exempt Amount) is £3,000 per individual. This means the first £3,000 of gains in any tax year is tax-free. The allowance has been reduced substantially from £12,300 in 2022/23, making tax planning more important than ever.
CGT rates depend on your total taxable income. For gains on most investments (shares, funds, bonds), basic-rate taxpayers pay 18% and higher or additional-rate taxpayers pay 24%. For residential property that is not your main home, the rates are 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers.
The rate you pay can straddle both bands if a gain pushes you from basic-rate into higher-rate territory. Only the portion of the gain falling within the higher-rate band is taxed at the higher rate.
The basic calculation is straightforward: take the sale proceeds, deduct the original purchase cost (including dealing charges and stamp duty), and deduct any allowable costs of improvement. The result is your gain. You can then deduct your annual exemption and any allowable losses to arrive at the taxable gain.
If you sell shares, the identification rules determine which shares you are treated as selling. The rules apply in this order: shares bought on the same day, shares bought in the following 30 days (the “bed-and-breakfasting” rule), and then shares from the “Section 104 pool”—a weighted average of all other shares of the same class.
💡 Married couples and civil partners each have their own annual CGT exemption. Transfers between spouses are exempt from CGT, so transferring assets to your partner before selling can effectively double the tax-free allowance available to your household.
The most effective way to shelter investments from CGT is to hold them within tax-efficient wrappers. ISAs (Individual Savings Accounts) allow you to invest up to £20,000 per tax year, and all gains and income within the ISA are completely tax-free—both now and when you withdraw.
Pensions are also free from CGT on gains made within the fund. Additionally, contributions benefit from income tax relief. The trade-off is that pension funds cannot normally be accessed until age 55 (rising to 57 from 2028).
Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) offer CGT exemptions on gains from qualifying investments, as well as upfront income tax relief. However, these carry higher risk as they invest in smaller, less-established companies.
If you sell an investment at a loss, you can offset that loss against gains made in the same tax year. If your losses exceed your gains, the excess can be carried forward indefinitely and set against gains in future years. However, carried-forward losses can only reduce gains down to the level of the annual exemption—you cannot create an additional tax-free amount.
Losses must be reported to HMRC within four years of the end of the tax year in which they arose if you want to carry them forward. Keeping records of all disposals—including loss-making ones—is therefore essential.
⚠️ The “bed-and-breakfasting” rule prevents you from selling shares at a loss and immediately buying them back to crystallise the loss. If you repurchase the same shares within 30 days, the loss is deferred. To work around this, you could buy back a different share class, a similar but not identical fund, or have your spouse purchase the shares instead.
There are several legitimate strategies to reduce your CGT bill. Use your annual exemption every year—consider selling enough investments each year to realise gains up to the £3,000 threshold, then repurchase if desired (observing the 30-day rule).
Bed-and-ISA: sell investments held outside an ISA and immediately repurchase them inside your ISA. This crystallises any gain (which may be covered by your annual exemption) and shelters all future growth from tax. Bed-and-pension works similarly, with the added benefit of income tax relief on the pension contribution.
If your total gains exceed the annual exemption, you must report them to HMRC. For most assets, gains are reported through your Self Assessment tax return and CGT is payable by 31 January following the end of the tax year. For UK residential property disposals, you must report and pay CGT within 60 days of completion.
Even if no tax is due—for example, because losses offset your gains—you may still need to report if the total proceeds exceed four times the annual exemption. Keeping detailed records of all acquisitions and disposals will make the reporting process much simpler.
CGT planning can be complex, especially if you have a diversified investment portfolio or are considering significant disposals. A qualified financial adviser can help you structure your investments tax-efficiently and ensure you are using all available reliefs. Find a savings and investments adviser through Nesto to discuss your CGT planning needs.
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