Heads Up, Investors: The UK Capital Gains Tax-Free Allowance Has Been Slashed Again
The government has once again tightened the rules on investment profits. For the 2025/26 tax year, the UK Capital Gains Tax (CGT) allowance has been cut in half.
Here’s what you need to know to stay ahead.
The New Capital Gains Allowance: It’s Just £3,000
The Capital Gains Tax allowance – officially known as the Annual Exempt Amount – is the amount of profit you can make from selling assets in a tax year before you have to pay any tax.
For the 2025/26 tax year (6 April 2025 to 5 April 2026), this allowance will be:
- £3,000 for individuals
- £1,500 for most trusts
This is a sharp drop from the £6,000 allowance in 2023/24 and a world away from the £12,300 it was just a few years ago. This trend means that even small investment gains that were previously tax-free might now result in a tax bill. 📉
What Happens if Your Profits Exceed the Allowance?
If your total capital gains in the tax year are more than £3,000, you’ll pay tax on the excess amount. The rate you pay depends on two things: your Income Tax band and the type of asset you’ve sold.
The CGT rates for 2025/26 are:
- On most assets (like shares or funds held outside an ISA):
- 10% if you’re a basic rate taxpayer
- 20% if you’re a higher or additional rate taxpayer
- On residential property (that isn’t your main home):
- 18% if you’re a basic rate taxpayer
- 28% if you’re a higher or additional rate taxpayer
Important: Your capital gains are added on top of your regular income. This means a large gain could push you into a higher tax bracket, and you’ll pay the higher rate of CGT on the portion of the gain that falls into that new bracket.
How to Protect Your Gains 🛡️
With the allowance now so low, smart planning is more crucial than ever. Here are a few key strategies to consider:
- Maximise Your ISA: This is your best defence! Any gains you make on investments held within a Stocks & Shares ISA are completely free from Capital Gains Tax. You can invest up to £20,000 each tax year.
- Use Your Pension: Like an ISA, any growth within your pension pot is sheltered from CGT.
- Think as a Couple: If you’re married or in a civil partnership, you can transfer assets to your partner without triggering a CGT event. This allows you to use both of your individual £3,000 allowances, potentially shielding up to £6,000 of gains per year.
- Harvest Your Gains Annually: Consider selling investments to realise gains up to the £3,000 annual limit. By “harvesting” your tax-free allowance each year, you can prevent a much larger, taxable gain from building up over time.
The key takeaway is that the goalposts have moved. The days of ignoring small investment profits are over. By understanding these changes and using the tax-efficient accounts available, you can keep more of your hard-earned money. 💰