Capital Gains Tax Explained 2026/27: Rates, Allowance and What Counts

What is Capital Gains Tax and How Does It Work in 2026/27?

Capital Gains Tax is an HM Revenue and Customs tax charged on the net capital gain—not the total sale proceeds—when you sell, gift, exchange, or dispose of a personal asset that has risen in market value. In 2026/27, statutory CGT rules apply unified rates of 18% and 24% across residential real estate, company shares, investment funds, cryptocurrencies, and high-value personal possessions, after deducting allowable acquisition expenses, capital improvement costs, and your £3,000 annual allowance.

A capital gain occurs whenever the disposal proceeds of an asset exceed its base cost. For example, if you purchased shares for £10,000 and sell them for £25,000, your gross gain is £15,000. You are taxed solely on this £15,000 profit, not the £25,000 total transaction amount. Crucially, CGT is not assessed in isolation; your net chargeable gains are added to your non-dividend taxable income (salary, pension, and rental profits) to determine how much of your remaining basic-rate tax band (£50,270) is available to absorb the gain at 18% before the 24% rate applies.

Certain classes of assets remain entirely outside the UK Capital Gains Tax regime by statute. You pay zero CGT on personal motor vehicles (including private cars and classic automobiles), UK government gilts, sterling currency, winnings from the National Lottery or legal betting, and any financial investments held within an Individual Savings Account (ISA) or registered pension wrapper.

UK Capital Gains Tax Rates and Allowances for 2026/27

Under statutory rates established in the Autumn Budget of October 2024 and confirmed for the 2026/27 tax year, the UK operates a simplified two-rate CGT structure: 18% on gains falling within your remaining basic-rate band and 24% on gains above it. The previous distinction between residential property (formerly 18% and 28%) and other chargeable assets (formerly 10% and 20%) was permanently abolished.

The £3,000 Annual Exempt Amount (AEA) is an individual statutory allowance. Spouses and civil partners who live together each receive their own £3,000 AEA. By transferring an asset into joint ownership prior to an exchange of contracts—an action that is 100% tax-free under inter-spousal rules—a married couple can shelter up to £6,000 of capital gains from HMRC in 2026/27.

How to Calculate Capital Gains Tax Step-by-Step

To compute your statutory CGT liability with penny accuracy, follow HMRC’s four-step calculation process: determine net proceeds, deduct allowable acquisition and improvement costs, subtract capital losses and the annual exemption, and allocate the taxable remainder across income tax bands.

1. Calculate Net Disposal Proceeds: Take the gross sale price (or open-market value for gifts to connected persons) and subtract incidental disposal expenses, including estate agent commissions, conveyancing fees, auction fees, and advertising costs.
2. Deduct Base Cost & Allowable Expenditure: Subtract the original purchase price paid for the asset, plus incidental costs of acquisition (Stamp Duty Land Tax, legal fees, valuation charges). You can also deduct genuine capital enhancement expenditure—such as building an extension or converting a loft—provided the improvement is reflected in the asset’s state at disposal. Day-to-day repairs, maintenance, and decorating are not deductible.
3. Apply Capital Losses and the £3,000 AEA: Offset any allowable capital losses incurred in the same 2026/27 tax year. If taxable gains remain, subtract your £3,000 Annual Exempt Amount. You can also deduct registered capital losses brought forward from previous tax years to reduce taxable gains down to the £3,000 threshold.
4. Assess Against the £50,270 Basic-Rate Threshold: Add your taxable non-dividend income to the net taxable gain. Any slice of the gain that sits beneath £50,270 is taxed at 18%. Any portion of the gain that pushes your combined total above £50,270 is taxed at 24%.

Worked Example 1: Basic-Rate Earner Selling Listed Shares

An investor earns an annual employment salary of £35,000 and sells shares outside an ISA for £30,000 that originally cost £10,000 to purchase:

• Gross Capital Gain: £30,000 − £10,000 = £20,000.
• Deduct Allowable Fees: Brokerage fees of £200 = £19,800 net gain.
• Deduct Annual Exempt Amount: £19,800 − £3,000 AEA = £16,800 taxable gain.
• Income Band Assessment: Salary of £35,000 leaves £15,270 of unused basic-rate band (£50,270 − £35,000).
• Basic-Rate Slice (18%): First £15,270 of gain taxed at 18% = £2,748.60.
• Higher-Rate Slice (24%): Remaining £1,530 (£16,800 − £15,270) taxed at 24% = £367.20.
• Total Capital Gains Tax Due: £2,748.60 + £367.20 = £3,115.80.

Worked Example 2: Higher-Rate Landlord Selling Buy-to-Let Property

A higher-rate professional earning £65,000 salary sells an investment property for £350,000 that was purchased ten years ago for £220,000:

• Gross Disposal Price: £350,000.
• Allowable Acquisition Costs: Original purchase £220,000 + SDLT £5,000 + legal fees £1,500 = £226,500.
• Allowable Disposal Costs: Estate agent fees £5,250 + solicitor conveyancing £1,750 = £7,000.
• Allowable Capital Enhancement: Structural kitchen extension completed in 2021 = £25,000.
• Total Allowable Deductions: £226,500 + £7,000 + £25,000 = £258,500.
• Net Capital Gain: £350,000 − £258,500 = £91,500.
• Deduct Annual Exempt Amount: £91,500 − £3,000 AEA = £88,500 taxable gain.
• Tax Band Assessment: Because the landlord’s salary (£65,000) already exceeds £50,270, £0 of basic band remains.
• Tax at 24%: All £88,500 taxed at 24% = £21,240.00. Must be reported and paid within 60 days.

CGT on Residential Property: Private Residence Relief and 60-Day Reporting

Disposals of residential real estate attract strict compliance rules, most notably Private Residence Relief (PRR) and HMRC’s mandatory 60-day reporting window for buy-to-let or second homes. While selling your primary family residence is fully tax-exempt, sales of rental dwellings or holiday cottages trigger an immediate payment deadline that catches many property owners unaware.

Under Private Residence Relief (PRR), no CGT is charged on any capital gain made from selling your only or main home, provided you lived in the property as your primary residence throughout ownership and did not let out parts of the home commercially. Furthermore, HMRC grants an automatic statutory exemption for the final nine months of ownership, meaning you can move into a new property nine months before selling your old home without incurring any CGT liability.

Business Asset Disposal Relief (BADR) & Investors’ Relief from April 2026

From 6 April 2026, the tax rate applicable to qualifying business disposals under Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and Investors’ Relief rose to a flat 18%, matching the basic rate of Capital Gains Tax. This follows earlier transitional rate increases and provides business owners with a reduced tax rate on up to £1,000,000 of lifetime capital gains.

To qualify for BADR on an unquoted trading company share sale:

• You must have been an officer (director) or employee of the trading company or group for at least two continuous years up to the date of disposal.
• The company must be a trading company whose activities do not include substantial investment holding or property rental operations.
• You must hold at least 5% of the ordinary share capital and voting rights, and be entitled to at least 5% of distributable profits and 5% of net assets on a winding-up.

Gains qualifying for BADR face an 18% flat rate, saving 6% compared to the standard 24% higher CGT rate. For a business founder realising the maximum £1,000,000 qualifying gain, BADR saves up to £60,000 in capital taxes (£240,000 standard tax vs £180,000 under BADR).

Budget Sensitivity: Autumn Budget 2026 Speculation on Capital Gains

Capital Gains Tax is a perennial focal point during HM Treasury fiscal reviews, with economists and policy groups actively lobbying for rate alignment ahead of the Autumn Budget on 28 October 2026. While the standard 18% and 24% rates established in October 2024 remain current law, pre-Budget speculation frequently centres on potential reforms:

Our editorial and technical team will monitor the Autumn Budget speech live on 28 October 2026 and deploy surgical updates on 29 October to ensure every threshold remains accurate. To see how public revenues fund public services, explore our guide to where your tax goes in the UK.