What is capital gains tax?
Capital gains tax is a UK tax on the profit you make when you sell or give away something that has risen in value. Examples include shares, a second home or a business. From April 2026 the rates are 18% and 24%, and the first £3,000 of gains each year is tax free.
You only pay tax on the gain, not the full sale price. Each person has a £3,000 annual allowance for 2026/27. Gains above that are added to your income to decide your rate. The part that falls within the basic rate band is taxed at 18%, and anything above is taxed at 24%. Trustees pay 24%. Gains are reported through Self Assessment or a special property return.
Many assets are exempt. Your main home is usually free of capital gains tax, as are ISAs, pensions, cars and Premium Bonds. Business owners selling qualifying shares can claim Business Asset Disposal Relief, which charges 18% from April 2026. Gains are not taxed on death, although the estate may face inheritance tax instead. Gifts between spouses and civil partners are also tax free.
Capital gains tax raises much less than income tax, and most of it is paid by a small number of very wealthy people. The rates were raised in October 2024 and the annual allowance has been cut sharply since 2022, when it was £12,300. Since April 2026, fund managers' carried interest has been taxed as income rather than as a capital gain.
Tax on profits from selling assets like shares or second homes. Raises about £15bn, very sensitive to rates.
How it works
- CGT basic rate: Gains are taxed below income partly because some of the gain is just inflation. People can simply choose not to sell.
- CGT higher rate: Equalising with income tax sounds fair, but the Treasury thinks big rises can lose money as investors hold on or leave.
- Annual exempt amount: Gains up to this level each year are tax free. Cut from £12,300 to £3,000, pulling many small investors into the system.
- Business Asset Disposal Relief rate: A lower rate for entrepreneurs selling their firm, rising to 18% in April 2026. Evidence it boosts enterprise is weak.
- Carried interest effective rate: Fund managers' share of profits. Now taxed as trading income at an effective 34.1%. Highly mobile people, small sums.
The left often argues gains should be taxed at the same rates as income, because most gains go to the wealthiest households.
The right often argues low capital gains tax rewards investment and risk. It warns that high rates lead people to hold assets or leave the UK.
Britain is split. Now you decide.
In WeDecide you can set capital gains tax rates in your Budget and see whether revenue rises or investors change their behaviour.
Play WeDecide freeCommon questions
What is the capital gains tax allowance?
The annual tax-free allowance is £3,000 per person for 2026/27.
Do I pay capital gains tax on my home?
Usually not. Your main home is normally exempt through Private Residence Relief.
What are the capital gains tax rates?
They are 18% for gains within the basic rate band and 24% above it.