New HMRC capital gains tax (CGT) rules have changed, pulling more taxpayers into the net, not only the wealthy. Income from the levy is set to soar by almost 80 per cent to £24bn in the last tax year – equivalent to well over £800 per household.
What is Capital Gains Tax and Who Pays It?
CGT is one of the least common taxes on income, and for many it won't apply. However, if you sell or give away an asset worth more than £3,000, you could have to pay CGT. It doesn't apply for main homes, cars, or lottery/pools winnings, among other things.
Each year, individuals have an 'annual exempt amount' that allows them to receive some gains tax-free. Above this, you pay CGT on all gains. For the 2025/26 tax year, the exempt amount is £3,000.
CGT as a Cash Machine for the Taxman
CGT is proving to be “a decent cash machine for the taxman”, says Clare Stinton, senior personal finance analyst at investment platform Hargreaves Lansdown. CGT rates were increased in the October 2024 budget by the Labour Party government.
Higher-rate taxpayers now pay 24 per cent on their gains. For basic-rate taxpayers, what they pay depends on the size of the gain and their taxable income: the lower rate for these people is 18 per cent.
How to Reduce Your CGT Bill
As well as ISAs, which are tax-free, personal finance experts say reducing your taxable income can help to reduce a CGT bill. The two main ways of doing this are by paying into a pension or making charitable donations.
Making a pension contribution for the amount you are over could mean you pay 18 per cent CGT rather than 24 per cent, experts reckon.
If you give or sell assets to your spouse or civil partner, you won't have to pay CGT, unless you separated and didn't live together during that tax year, or assets you gave them were sold on via their business.
It's worth giving or selling your assets to your spouse or civil partner if you'll exceed 2025/26's exempt amount of £3,000 but your partner won't. That way, neither of you will need to pay CGT.
