Finance Matters Insights
Capital Gains Tax Explained: Allowances, Rates and Transactions That Trigger CGT
HMRC recovered £477 million in extra Capital Gains Tax in the last tax year (2025/26) after concluding 9,400 investigations. CGT may not feel like it receives much attention, but HMRC is certainly paying attention to it.
CGT is not exclusively a tax for the very wealthy. The annual tax-free allowance is now just £3,000, which means fairly ordinary transactions can create a tax liability.
💷 How Capital Gains Tax works
Capital Gains Tax may be charged when you sell, transfer, gift or exchange an asset that has increased in value. It is the gain that matters, rather than the total amount you receive.
For example, if you bought shares for £8,000 and later sold them for £13,000, you would have made a £5,000 gain before accounting for any allowable costs or losses.
The current CGT allowance is £3,000, which means that any gains within this threshold are tax free. Assuming you had no other gains or losses during the tax year, £2,000 of the gain from selling those shares would be taxable.
The amount you pay will also depend on your taxable income. For the 2026/27 tax year, gains falling within the unused basic-rate band are generally taxed at 18%, while gains above it are generally taxed at 24%.
Importantly, the £3,000 allowance applies to your combined gains across the entire tax year. It is not a separate allowance for each asset, investment account or platform you use.
💻 The sales that count
There's a misconception that CGT applies to substantial sales but that's not quite the case.
Other transactions that qualify:
→ Shares held outside an ISA: Gains inside an ISA are completely tax-free, which is exactly why ISAs are so valuable. Gains on shares held outside one are not.
→ A second property: Your main home is usually protected by Private Residence Relief, but second homes, holiday lets and buy-to-lets aren't. For UK residential property, you have to report and pay the CGT within 60 days of completion.
→ Business assets: Selling shares in your own company, or disposing of business assets as a sole trader or partner, can trigger CGT too.
→ Business assets: Selling shares in your own company, or disposing of business assets as a sole trader or partner, can trigger CGT too.
→ Gifts to anyone other than your spouse or civil partner: Even though no money changes hands, HMRC treats a gift as if you'd sold the asset at its market value. Transfers between spouses and civil partners who are living together are generally made without an immediate CGT charge.
📌 What it means for you
Simply being aware of how CGT works means you know when it applies to you.
For tax efficiency, it's worth using your ISA allowance first (£20,000 per tax year), because gains inside an ISA never attract CGT at all.
Where you can, plan bigger sales across tax years so you use more than one year's £3,000 allowance. And if you sell a UK residential property that isn't your main home, put the 60-day deadline in your calendar on completion day. For most other gains, you report them through a Self Assessment tax return in the tax year after the sale, with the tax due by the following 31 January.
The £477 million recovered by HMRC is a useful reminder that not realising a transaction was taxable does not remove the responsibility to report it. Above all, check before you sell, not after.
If any of this sounds familiar, it's worth a chat with your accountant beforehand, rather than after HMRC writes to you.
Until next week,
Fis
F
Fisayo Martins
Founder at Finance Matters UK
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