Capital Gains Tax (CGT) is one of those taxes that feels distant until it suddenly is not. If you sell a business, dispose of an investment, or transfer assets, CGT is what HMRC charges on the profit you make. The rates changed materially in the October 2024 Budget and have carried through into 2025/26 — so if you have any assets you might sell in the next year or two, this is worth understanding.
What has changed
The main CGT rates on non-residential assets increased from October 30, 2024. The previous lower rate of 10% for basic rate taxpayers moved to 18%, and the higher rate of 20% moved to 24%. Residential property rates were already at 18% and 24%, so those remain unchanged.
| Asset Type | Basic Rate Taxpayer | Higher/Additional Rate |
|---|---|---|
| Non-residential assets (shares, investments, business assets) | 18% | 24% |
| Residential property (not main home) | 18% | 24% |
| Business Asset Disposal Relief (qualifying) | 14% (2025/26) | 14% (2025/26) |
The annual CGT exemption — the amount of gain you can make each year before CGT applies — was cut from £12,300 in 2022/23 to £6,000 in 2023/24, and then again to £3,000 in 2024/25 where it remains. That is a significant reduction and means CGT now applies to much smaller gains than it did a few years ago.
Business Asset Disposal Relief — important changes
Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief, allows qualifying business owners to pay a reduced CGT rate on the sale of their business. The lifetime allowance remains at £1 million — meaning you can claim the reduced rate on up to £1 million of qualifying gains over your lifetime.
However, the rate itself has changed:
- Before October 2024: 10%
- From October 2024 (2025/26): 14%
- From April 2026 (2026/27): 18%
If you are planning to sell your business, the timing is now genuinely consequential. A disposal in 2025/26 at 14% versus 2026/27 at 18% on a £500,000 qualifying gain is a difference of £20,000. That is worth planning around.
What counts as a capital gain?
CGT applies to the profit you make when you dispose of an asset. Common triggers include:
- Selling shares in a company (including your own limited company)
- Selling a second property or buy-to-let
- Selling investments held outside an ISA
- Gifting assets — a gift is treated as a disposal at market value for CGT purposes
- Transferring assets on divorce (though inter-spouse transfers in some circumstances are exempt)
- Selling business assets such as goodwill, premises, or intellectual property
Your main home is generally exempt from CGT under Private Residence Relief — but there are exceptions for properties that have been let out, used partly for business, or where the garden exceeds half a hectare.
How CGT interacts with income tax
CGT is calculated on top of your income for the year. Your gains are effectively added to the top of your income, which determines which rate applies. If your income already takes you into the higher rate band, all your gains will be taxed at the higher CGT rate. If some of your basic rate band is unused, that portion of gains is taxed at the lower rate.
This is why CGT planning sometimes involves spreading disposals across tax years, using the annual exemption each year, and timing sales to coincide with years of lower income.
Practical points to consider
Use your annual exemption
The £3,000 annual exemption cannot be carried forward. If you have investments with modest gains, consider whether realising some gains each year to use the exemption makes sense — particularly if you intend to hold the assets long term anyway and could rebuy them.
Bed and ISA
If you hold investments outside an ISA, you can sell them (realising a gain up to the annual exemption) and reinvest the proceeds into an ISA. Future growth and income within the ISA is then sheltered from tax entirely.
Losses offset gains
Capital losses can be offset against gains in the same or future tax years. If you have assets sitting at a loss, crystallising those losses before realising gains can reduce your overall CGT bill. The losses must be reported to HMRC even if there is no tax to pay.
Timing around the tax year end
If you are considering a sale that will generate a large gain, April 5th is a meaningful date. A disposal on April 5th uses the current year's annual exemption. A disposal on April 6th uses next year's — giving you an entire year before the tax is due.
Planning a disposal or thinking about your exit?
CGT planning is one of those areas where the right advice at the right time genuinely saves money. We are happy to talk through your options.
Get in TouchThis article is for general information purposes and does not constitute tax advice. CGT rules are complex and individual circumstances vary. Please speak to a qualified accountant before making any disposal decisions.