The UK government has significantly lowered the annual capital gains tax (CGT) allowance, pulling thousands more people into the tax net. From the 2025-26 tax year, the allowance has been slashed to £3,000, down from £6,000 the previous year and £12,300 in 2022-23. This change means that anyone selling investments, second homes, or other assets that have increased in value may now face a tax bill.
Who is affected? Anyone who sells an asset and makes a profit above the annual allowance must report and pay CGT. This includes gains from shares, property (not your main home), business assets, and personal possessions worth over £6,000. The lower threshold catches many who previously were exempt.
Rates and reporting Basic-rate taxpayers pay 10% on gains (18% for residential property), while higher-rate taxpayers pay 20% (24% for property). You must report gains via a self-assessment tax return or use the government's 'real-time' Capital Gains Tax service within 60 days of selling a residential property. Penalties apply for late reporting.
Strategies to consider
- Use your annual allowance: if you have gains under £3,000, no tax is due. Consider selling assets in stages to stay within the limit.
- Offset losses: losses from other asset sales can be used to reduce your taxable gain. Ensure you report losses within four years.
- Transfer assets to a spouse: transfers between spouses are tax-free, effectively doubling the household allowance.
- Consider ISAs: gains within an ISA are tax-free. You can contribute up to £20,000 per year.
What about property? Selling a second home or buy-to-let triggers CGT. You have 60 days to report and pay after completion. If you live in the property at any point, you may qualify for private residence relief. Letting relief has been restricted to £40,000 per owner.
Future outlook The allowance is expected to drop further to £1,500 in 2026-27 and then £500 from 2027-28. Experts advise planning ahead and seeking professional advice if you have complex assets. The Treasury estimates the change will raise around £1.5 billion annually, partly by targeting wealthier investors.
“The reduction in the CGT allowance is a significant shift that will affect many more people. It's essential to understand your obligations and plan accordingly,” said a tax partner at a leading accountancy firm.
Bottom line With the allowance halved, more taxpayers must engage with CGT. Keep records of purchase and sale prices, stay informed about rate changes, and don't hesitate to consult a tax professional.