Capital gains tax: more people have to pay, so here’s what you need to know

Less generous rules have turned capital gains tax into a “cash machine” for the government, with income from the levy soaring by almost 80% to £24bn in the last tax year – equivalent to well over £800 a household.

A series of changes to the way the charge works means more people are being pulled into the capital gains tax (CGT) net, and not only the wealthy. And, given the scale of the change, this week experts were reminding consumers of legitimate ways to reduce a CGT bill.

CGT is a tax on the profit you make when you sell – or “dispose of” – something that has increased in value. It is proving to be “a decent cash machine for the taxman”, says Clare Stinton, the senior personal finance analyst at the investment platform Hargreaves Lansdown.

The £24.3bn raised in 2025-26 is up sharply on the previous year’s £13.7bn haul, and more than three times the amount raised in 2017-18. The government’s economics watchdog, the Office for Budget Responsibility, recently predicted that the amount CGT pulls in is likely to keep rising and will hit £35bn in 2030-31.

Meanwhile, last month the former health secretary Wes Streeting set out plans for a wealth tax that would equalise CGT with income tax, which he said would make the system fairer and mean higher bills for many of those affected.

CGT is levied on profits from a variety of assets, most notably investments (funds and shares) that are not held in an Isa, property that is not your main home, and most personal possessions worth £6,000 or more, apart from your car.

You get a tax-free allowance for each tax year, known as the annual exempt amount. However, this has been slashed in recent years: until 2022-23 it was £12,300, then it was cut to £6,000, and now it is £3,000.

That allowance refreshes each tax year – if you don’t use it, you lose it, says Stinton.

Meanwhile, CGT rates were increased in the October 2024 budget. Higher-rate taxpayers now pay 24% 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%.

There are various ways people can reduce their liability.

You usually don’t pay CGT on assets you give to your husband, wife or civil partner. So, says Stinton, if you are married or in a civil partnership, you can transfer investments between you that would enable you to use both CGT allowances. “That’s annual gains of £6,000 before tax may be payable.”

Many experts say it is more important than ever these days to make full use of your Isa allowance. UK residents aged 18-plus can invest up to £20,000 each per tax year, and parents can fund a junior Isa with up to £9,000 per child per tax year, “making a total of £58,000 for a family of four,” says Elsa Littlewood, a tax partner at the accountancy firm BDO.

For those who hold investments outside an Isa, selling can trigger a CGT bill. However, investors are able to offset losses against any gains that are taxable – either in 2026-27 or in later years (provided it is claimed through their tax return), Littlewood says. “So matching gains and losses can cut the overall tax bill.”

Littlewood adds: “If you have adult children who are planning to buy a home, you may wish to gift funds to them so they can invest in a lifetime Isa.” These can be opened by those who are 18 or over but under 40.

If someone has capital gains that exceed their annual tax-free allowance, these sit on top of their taxable income when it comes to working out the rate of tax that needs to be paid on these profits, says Clare Moffat, a pensions and tax expert at the insurer Royal London.

So 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.

For example, if the gain on selling an asset means it would push you into the higher-rate tax band, making a pension contribution for the amount you are over could mean you pay 18% CGT rather than 24%, Moffat says. Plus, of course, you are boosting your retirement pot.

Finally, Moffat says that if you inherit an asset from a loved one upon their death, it is worth thinking carefully about whether you want to keep it. When you inherit an asset, inheritance tax is usually paid by the estate of the person who died. “However, if you later sell or give that asset away, you would need to work out if CGT is due.”