The £3,000 allowance that decides whether selling shares or a second home costs you tax

Five years ago, most people who sold a few shares or a painting never came near Capital Gains Tax. The tax-free allowance was large enough to absorb a sizeable gain. That cushion has largely gone.

The annual exempt amount for individuals was £12,300 in 2022/23. It was cut to £6,000 in 2023/24 and to £3,000 from 2024/25, where it remains for 2026/27. At the same time the rates have been restructured, so gains are now taxed at 18% or 24% depending on your income. Here is what is caught, what is not, and the reporting deadlines that catch people out.

What you pay it on

Capital Gains Tax is charged on the gain, the difference between what you paid for something and what you sold it for, not on the whole sale price. HMRC lists the main chargeable assets as:

• personal possessions worth £6,000 or more, apart from your car;
• property that is not your main home, such as a buy-to-let or holiday cottage;
• your main home, if you have let it out, used it for business or it is very large;
• shares that are not held in an ISA or PEP;
• business assets and cryptoassets.

Some things are exempt altogether: ISAs and PEPs, UK government gilts, Premium Bonds, betting and lottery winnings, and cars. Gifts to a husband, wife or civil partner are not taxed either, unless you were separated and did not live together at all in that tax year. Gifts to charity are also free of the tax.

The allowance has shrunk by three quarters

Source: HMRC, Capital Gains Tax rates and annual tax-free allowances. The £13,000 gain is illustrative.

How the rate is worked out

The rate depends on how much of your basic-rate Income Tax band is left once your income is counted. HMRC sets out five steps:

1. Work out your taxable income: income minus your Personal Allowance and other Income Tax reliefs.
2. Add up your taxable gains for the year.
3. Deduct the £3,000 allowance.
4. Add what is left to your taxable income.
5. Any part that falls within the basic-rate band is taxed at 18%; anything above it at 24%.

Higher and additional-rate taxpayers pay 24% on all their taxable gains. Trustees and personal representatives also pay 24%, and qualifying gains under Business Asset Disposal Relief are taxed at 18%. Because the Income Tax bands are frozen, as we explain in our article on fiscal drag, fewer people have room left in the basic band each year.

Your home is usually exempt, but check the conditions

Private Residence Relief means you normally pay nothing when you sell your home. It applies automatically if you have one home and have lived in it as your main home for the whole time you owned it, have not let part of it out, have not used part of it exclusively for business, the grounds including buildings are under 5,000 square metres, and you did not buy it just to make a gain. A lodger does not count as letting, as we note in our Rent a Room guide, and occasional use as a home office does not count as business use. Married couples and civil partners can only have one main home at a time.

Reporting: 60 days for property, the end of the year for the rest

For UK residential property, a UK resident who has tax to pay must report the sale and pay the tax within 60 days of completion, using HMRC's online service. If your total gains are below the tax-free allowance, you do not need to report online.

For other gains, such as shares, you can report through Self Assessment for the tax year, or use HMRC's real-time Capital Gains Tax service for 2025/26 and 2026/27 gains, reporting by 31 December in the tax year after the gain and paying by 31 January.

Losses, couples and timing

Losses are worth recording. A reported loss is set against gains in the same year first, and unused losses can be carried forward to later years. You have up to four years after the end of the tax year of the sale to claim a loss. Because each spouse or civil partner has their own £3,000 allowance and their own Income Tax bands, and gifts between them are not taxed, couples sometimes look at who owns an asset before it is sold. The gift has to be genuine and outright for that to hold.

Who this matters for, and what to check

This matters for anyone with shares outside an ISA, a second property, inherited assets or valuable possessions they plan to sell. Keep records of what you paid and when, plus the costs of buying, improving and selling. If you are deciding where to keep savings, note that Premium Bonds prizes and ISA growth sit outside Capital Gains Tax. For property, put the 60-day deadline in the diary before completion, not after.

The takeaway

With a £3,000 allowance, modest gains that were once tax-free now produce a bill, and the rate depends on your income in the year you sell. Knowing your cost figures, using losses and timing a sale carefully are legitimate ways to keep the tax right. HMRC's calculators on GOV.UK are free.