Capital Gains Tax (CGT) is a tax on the profit you make when selling certain assets, such as shares, property (other than your main home), or valuable personal possessions. Understanding how to manage your assets and apply available reliefs can significantly reduce your tax bill. This guide provides a detailed explanation of how CGT works in the UK, who pays it, and the strategies you can use to legally minimise your CGT liability when selling assets.
What is Capital Gains Tax?
Capital Gains Tax is charged on the profit (gain) you make when you sell or dispose of an asset. The gain is calculated as the difference between what you paid for the asset (plus certain allowable costs) and what you sold it for. CGT applies to assets such as:
- Shares and investments (outside ISAs and pensions)
- Second homes and buy-to-let properties
- Valuable personal items worth over £6,000 (e.g. art, antiques)
- Business assets
Some assets, like your main residence (under most circumstances) and ISAs, are exempt from CGT.
Current CGT Rates and Allowances
As of the 2025/26 tax year, CGT rates are as follows:
- Basic rate taxpayers: 10% on most assets, 18% on residential property
- Higher or additional rate taxpayers: 20% on most assets, 24% on residential property
Each individual has an annual tax-free CGT allowance (£3,000 for 2025/26). This means you only pay CGT on total gains above this threshold in a tax year.
Use Your Annual Exempt Amount
Every UK taxpayer is entitled to an annual CGT exemption. For the 2025/26 tax year, this is £3,000. By timing asset sales carefully and making use of this allowance each year, you can effectively shelter gains from tax. If you have significant gains, consider spreading disposals across different tax years to use multiple allowances.
Utilise Spousal Transfers
Transfers of assets between spouses or civil partners are exempt from CGT, meaning you can transfer part or all of an asset to your spouse to make use of their annual exempt amount and potentially lower tax band. This can effectively double the tax-free allowance for married couples or civil partners and reduce the overall CGT liability.
Timing Your Sale to Stay in a Lower Tax Band
CGT is calculated based on your total taxable income and gains. By carefully timing your asset sales—such as in a year when your income is lower—you might remain in the basic rate band, paying CGT at 10% or 18% instead of the higher rates. Combining gains with pension contributions or charitable donations can help keep your taxable income lower.
Offsetting Capital Losses
If you’ve sold other assets at a loss, you can offset these losses against your gains in the same tax year to reduce your CGT bill. If your losses exceed your gains, you can carry the unused losses forward to future tax years. Remember to register losses with HMRC by including them on your tax return to claim them later.
Claiming Private Residence Relief
Your main home is usually exempt from CGT due to Private Residence Relief. However, if you have lived elsewhere for part of your ownership period or have used part of your home exclusively for business, the relief may be reduced. If you’ve let out the property at any time, Letting Relief (now significantly restricted) may also reduce the gain subject to tax, depending on the circumstances.
Making Use of ISAs and Pensions
Investments held inside an ISA are not subject to CGT, regardless of the size of the gain. Similarly, assets held in pension schemes grow free from CGT, and gains are only taxed as income when you withdraw them (often at a lower rate). Using these tax-efficient wrappers can help you manage your investments more effectively and shield gains from CGT entirely.
Entrepreneurs’ Relief (Business Asset Disposal Relief)
If you’re selling all or part of your business, Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) may allow you to pay CGT at a reduced rate of 10% on the first £1 million of lifetime gains. This relief is available to business owners meeting certain criteria, such as holding at least 5% of shares and being an employee or officeholder for at least two years prior to the sale.
Use Trusts and Family Planning
Gifting assets into a trust can sometimes defer or reduce CGT, though there are complex rules and potential Inheritance Tax implications. This strategy often requires professional advice but can be useful for estate and succession planning while managing CGT liabilities.
Bed and Spouse Strategy
Since “bed and breakfasting” (selling an asset and immediately repurchasing it) is disallowed for CGT purposes, you can instead sell an asset and have your spouse repurchase it to reset the base cost. This effectively allows you to use both spouses’ annual exemptions without breaching anti-avoidance rules.
Reporting and Paying Capital Gains Tax
For UK residents selling residential property, CGT must be reported and paid within 60 days of completion. Other disposals are reported through the Self-Assessment tax return due by 31 January following the end of the tax year. It’s important to keep accurate records of purchase and sale costs, improvement costs, and allowable expenses to calculate your gain correctly and claim all eligible reliefs.
Conclusion
Reducing your CGT liability when selling assets requires careful planning and a good understanding of the available reliefs and exemptions. By using your annual allowance, making use of spousal transfers, timing your sales effectively, offsetting losses, and taking advantage of tax-efficient wrappers like ISAs and pensions, you can significantly reduce the amount of CGT you pay. Always consider seeking professional tax advice to ensure compliance and maximise your savings.
