Capital gains tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. Recent rule changes have turned it into a significant revenue source for the government, with income from the levy soaring by almost 80% to £24 billion in the last tax year—equivalent to over £800 per household. A series of adjustments means more people, not just the wealthy, are being pulled into the CGT net. Experts are now reminding consumers of legitimate ways to reduce their CGT bill.
What Is Capital Gains Tax?
CGT applies to profits from assets such as investments (funds and shares not held in an ISA), property that is not your main home, and most personal possessions worth £6,000 or more, excluding your car. You receive a tax-free allowance each tax year, known as the annual exempt amount. However, this has been slashed recently: from £12,300 in 2022-23 to £6,000, and now £3,000. This allowance refreshes annually—if unused, it is lost.
Rates and Revenue
CGT rates increased in the October 2024 budget. Higher-rate taxpayers now pay 24% on their gains, while basic-rate taxpayers pay 18% depending on the gain size and taxable income. The government raised £24.3 billion in 2025-26, up sharply from £13.7 billion the previous year and more than triple the 2017-18 amount. The Office for Budget Responsibility predicts CGT revenue will hit £35 billion by 2030-31. Meanwhile, former health secretary Wes Streeting proposed a wealth tax to equalize CGT with income tax, which would increase bills for many affected.
Ways to Reduce Your CGT Bill
- Spousal transfers: You usually do not pay CGT on assets transferred to a spouse or civil partner. This allows couples to use both CGT allowances, potentially doubling tax-free gains to £6,000 annually.
- ISAs: Maximize your ISA allowance. UK residents aged 18+ can invest up to £20,000 per tax year, and parents can fund a junior ISA with up to £9,000 per child per year—totaling £58,000 for a family of four.
- Loss offsetting: Investors can offset losses against taxable gains in the same or future years, reducing the overall tax bill.
- Gifting for Lifetime ISAs: If you have adult children planning to buy a home, consider gifting funds for a Lifetime ISA (available to those aged 18-39).
- Reduce taxable income: Capital gains sit on top of taxable income for rate calculation. Paying into a pension or making charitable donations can lower your income, potentially reducing the CGT rate from 24% to 18%.
- Inherited assets: When inheriting an asset, consider whether to keep or sell it. Selling later may trigger CGT, so plan accordingly.
Experts emphasize that careful planning can significantly reduce CGT liabilities. For personalized advice, consult a tax professional.
