What Is the Capital Gains Allowance

Did you know that in the 2023–24 tax year, around 378,000 taxpayers in the UK were liable for capital gains tax on profits totalling about £65.9 billion? That figure shows how important it is to understand your capital gains allowance when you sell investments, shares or a secondary property. Even everyday taxpayers are now being caught by the rules because the tax-free allowance has been cut so dramatically.

In this guide from Prosper Accountancy, we’ll explain what the capital gains allowance is, how much it’s worth in the current tax years, how to calculate what you owe, and a few simple ways to plan ahead so you don’t end up paying more than you need to.

What Is Capital Gains Tax?

Capital gains tax (CGT) is the tax you pay when you sell or dispose of something that has increased in value. It could be a secondary property, shares, cryptocurrency, artwork or a business interest. The key point is that the tax applies to the gain, the increase in value between what you paid and what you sold it for, not the full sale price.

For example, if you bought a rental flat for £200,000 and later sold it for £300,000, your gain is £100,000. HMRC will use that figure, not the £300,000 total, when working out your tax bill.

You can also make a “disposal” by gifting an asset, swapping it for something else or receiving compensation if it’s lost or destroyed. It’s not just about selling for cash.

The good news is that you don’t pay tax on every gain you make. Each tax year, you get a capital gains allowance, which means part of your gain is completely tax-free.

How Much Is the Capital Gains Allowance for 2024/25 and 2025/26?

For both the 2024/25 and 2025/26 tax years, the capital gains allowance is £3,000 per person. That means you can make up to £3,000 in profit before paying any capital gains tax.

If you own assets jointly with your spouse or civil partner, you each get your own allowance. Together, that’s £6,000 tax-free in one year.

The allowance has fallen sharply in recent years, from £12,300 in 2022/23 and £6,000 in 2023/24, and it’s now frozen at current levels until at least 2026. Because of that reduction, more ordinary investors and landlords are being brought into the CGT system for the first time.

If you’re planning to sell an investment or secondary property, it’s now more important than ever to check whether you’ll exceed the allowance before you complete the sale. If you’re unsure, consider working with our personal tax returns service to make sure your tax is handled correctly.

What Are the Capital Gains Tax Rates?

Once your profit exceeds the capital gains allowance, you’ll pay capital gains tax. The rate depends on your total income and what kind of asset you’ve sold.

From 30 October 2024, these rates apply to most disposals. For those with lower incomes, part of the gain may be taxed at 18 per cent and the rest at 24 per cent if it pushes you into the higher bracket.

If the sale involves a secondary property, HMRC usually applies the same rates but only after checking whether any reliefs for a main home apply, which they normally don’t for rental or holiday homes.

How to Calculate Your Capital Gains Tax

Working out your CGT bill doesn’t have to be confusing. Here’s how to do it:

First, calculate your gain: take the sale price and subtract the price you originally paid. Add any allowable costs such as legal fees, agent fees or renovations for property. Then subtract your capital gains allowance of £3,000 (or £6,000 for joint owners). Whatever remains is your taxable gain, and you then apply the correct rate based on your income and the type of asset.

Example

You sell a secondary property in the tax year 2025/26 for a profit of £25,000. After subtracting your £3,000 allowance, you’re left with £22,000 of taxable gains. If you’re a higher-rate taxpayer, you’ll pay 24 per cent on that £22,000, which works out to £5,280 in capital gains tax.

The date you complete the sale matters: the tax rules apply based on the disposal date, so even if you bought the asset years ago, it’s the sale date that decides how much tax you’ll pay. If you’d like assistance in working out your figures or preparing your return, we offer bookkeeping and accounting services to ensure everything is ready for the tax return.

How to Use Losses to Reduce Capital Gains Tax

If you’ve sold something at a loss, don’t ignore that loss, it can be helpful. You can offset losses against your gains to reduce how much capital gains tax you owe.

For example, if you made a £10,000 gain selling shares but also lost £3,000 on another investment, your total taxable gain becomes £7,000. After subtracting your capital gains allowance of £3,000, you’d only pay tax on £4,000.

Losses can be carried forward indefinitely as long as you tell HMRC about them within four years of the end of the tax year when they occurred. That means keeping good records of past investment losses can help you over many years. If you need help maintaining those records, you might consider our confirmation statements and compliance services.

Can You Reduce or Avoid Capital Gains Tax?

There are legitimate ways to reduce how much capital gains tax you pay. If you plan ahead, you can make better use of your capital gains allowance and minimise your tax liability.

One approach is transferring assets to your spouse or civil partner before disposing of them. Transfers between spouses are CGT-free, meaning you both can use your separate allowances. Another route is timing the sale of an asset to fall in a tax year when your income is lower, since staying within the basic rate band can reduce the rate applied to your gain. If you’re selling all or part of a business, you may qualify for Business Asset Disposal Relief, which can reduce your tax rate to 10 per cent in certain circumstances.

If you’re reviewing your situation and considering what to sell and when, our BoardView meetings service can help you decide strategically and manage your tax-planning effectively.

When Do You Have to Report and Pay CGT?

It’s important to comply with the reporting rules for capital gains tax, especially where property is concerned. If you sell a secondary property, you must report the sale and pay any CGT due within 60 days of completion. For other assets like shares, crypto or personal possessions, you usually report via Self Assessment by 31 January following the end of the tax year.

If you’re uncertain about the deadlines or how to report, our accounting services cover a range of support, from tax returns through to company closure and bookkeeping.

Failing to meet deadlines can lead to HMRC charging penalties or interest, so it’s wise to prepare in advance and keep accurate records.

Making the Most of Your Capital Gains Allowance

In conclusion, understanding your capital gains allowance is one of the most straightforward ways to reduce how much capital gains tax you pay when selling investments, shares or a secondary property. With the allowance at £3,000 per person for 2024/25 and 2025/26 (or effectively £6,000 for couples), you have a valuable tax-free amount each year. When combined with losses, timing strategies and reliefs, this allowance can have a real impact on your tax bill.

Using your allowance effectively is about knowing what counts as a gain, when to report it, and how to manage your disposal decisions. If you need help calculating or reporting your gains, or want to check whether you qualify for reliefs like Business Asset Disposal Relief, contact Prosper Accountancy for straightforward, reliable advice that keeps you ahead of tax requirements and helps you make the most of your financial position.