Practical tax information to help you navigate through the tax system and plan tax efficiently by providing you with an overview of the key tax rules.
Throughout this guide you will find a number of tax tips and checklists to help you identify planning opportunities, pitfalls to avoid and areas where you may need to take action. We would be happy to help with advice on your specific position.
The rules, rates and allowances in this guide relate to the 2025/26 tax year and these may be different for other tax years.
Disposals and capital gains tax
The basics
When you dispose of a capital asset such as shares, your business or a property, Capital Gains Tax (CGT) may arise on the chargeable gain which is broadly the difference between the sale proceeds and the original cost. Where property has been improved then these capital costs may be available to reduce the value of the gain. In addition, various reliefs may apply to either reduce the value of the chargeable gain or the rate of CGT payable.
The annual exempt amount (AEA) results in the first £3,000 of gains for 2025/26 being tax free.
| Tax Tip |
|---|
|
Each individual has their own AEA. Equalising assets between partners may allow both exemptions to be used to the fullest extent. See Family matters for more details. |
Rate of CGT
In general CGT is payable at 18% where total taxable gains and income, after taking into account all allowable deductions, are within the income tax basic rate band. CGT is payable at 24% on gains, or any parts of gains, above this limit.
Capital losses
Capital losses may only be used against capital gains. Current year losses are offset against current year gains as much as possible; this may result in the AEA being wasted. Brought forward losses may be restricted to preserve an amount of gain in the year equal to the AEA.
| Tax Tip |
|---|
|
As you will see later in this section, a lower CGT rate applies to gains qualifying for Business Asset Disposal Relief or Investors’ Relief than to other gains. You can choose to allocate the AEA and any losses against gains subject to a higher rate of CGT in order to maximise the tax saving. |
Reporting and payment of CGT
For non-residential property disposals, these can be reported on the self assessment tax return or via a ‘real-time return’ if you are not otherwise required to submit a tax return. Payment of CGT is due by 31 January following the tax year of the disposal.
CGT on residential property disposals must be reported and a ‘best estimate’ payment on account made within 60 days of completion of sale.
| Tax Tip |
|---|
|
When calculating the best estimate of CGT on a residential property disposal, you can take into account the AEA and any capital losses brought forward or incurred in the tax year prior to the completion date of the disposal. |
CGT Reliefs
Private Residence Relief
An individual’s or married couple’s only or main residence is generally exempt from CGT under a relief known as Private Residence Relief (PRR). The exemption extends to grounds of up to half a hectare provided this is not used for any other purpose. Larger grounds may also be exempt, but professional advice is recommended to plan for the best outcome in this case.
There must also be clear evidence of occupation as a main residence and not just ownership. An element of the gain may be chargeable if the individual is absent from the property during the period of ownership. Certain periods of absence from the property can be deemed to be periods of occupation and as such, can count towards the exemption from CGT. Please contact us if you have been absent from your property and we can advise on the likely position.
Where an individual (or married couple) has two or more residences, only one residence at any one time can be treated as the main home for exemption. This is done by an election.
| Tax Tip |
|---|
|
As long as the property has been your main residence at some point, the last nine months will always be treated as a period of occupation even if you are not present in the house. This gives you some leeway to move into a new property before disposing of the previous one and still retain full PRR. |
| Example |
|---|
|
Joe’s house in Luton is his private residence, which he has owned for eight years. Fed up with commuting, he buys a flat in central London and elects for this to be his main residence. Exactly five years later he sells his home in Luton.
The Luton home is exempt for the first eight years whilst he was living in it and for the last nine months because, even though he had another home which was his main residence during this time, the last nine months is always exempt provided the home in question qualified as the main residence at some point.
8.75/13 of the gain on the Luton home will be exempt from CGT. Upon the eventual sale of the flat the whole of that gain will also be exempt. |
Full PRR also only applies where the whole property is occupied. Apportionment may be required where part of the property is used for business purposes or is let out with resulting gains being potentially taxable. Lettings Relief may apply where you have multiple lodgers or let out part of your home. We would be happy to discuss your specific circumstances with you.
Business Asset Disposal Relief
Business Asset Disposal Relief (BADR) may be available on the first £1 million gains from the disposal of certain businesses during an individual’s lifetime. Qualifying gains are taxed at a 14% rate of tax. Qualifying business disposals include:
- qualifying shareholdings in a trading company (broadly where an employee or office holder owns at least 5% of the shares and voting rights)
- the whole or part of an unincorporated business
- the disposal of assets on cessation of a business.
There needs to be a qualifying period of ownership of two years up to the date of disposal.
| Tax Tip |
|---|
|
The CGT rate applying to disposals of assets qualifying for BADR will increase to 18% for 2026/27. Accordingly, if you are planning a disposal of your business you may wish to accelerate the disposal to 2025/26. |
Where an individual makes a qualifying business disposal, relief may also be available on an ‘associated disposal’. An ‘associated disposal’ is a disposal of an asset which is used in a qualifying company of the individual or used in a partnership where the individual is a partner.
| Example |
|---|
|
Maggie owns a non-residential property which is used by her wholly owned trading company. Provided the property is disposed of in conjunction with a material disposal of her shares in the trading company then the gain on the property may also qualify for BADR.
Care should be taken where rent has been charged on the property as this could limit the availability of BADR. Please contact us if you personally own a property which is used in your business. |
The rules on qualifying disposals, particularly in relation to qualifying shareholdings, can be complex. Please do get in touch if you would like to discuss whether BADR might be available or how to meet the requirements.
Investors’ Relief
A 14% CGT rate applies to external investors (i.e. not employees or officers of the company) in unlisted trading companies. Conditions apply:
- shares must be newly issued and subscribed for by the individual for new consideration
- be in an unlisted trading company, or an unlisted holding company of a trading group
- have been issued by the company on or after 17 March 2016
- have been held continuously for a period of three years before the disposal.
As for BADR, an individual’s gains for Investors’ Relief is subject to a lifetime cap of £1 million and the rate increases to 18% in 2026/27.
We can help
Contact us if you:
- Have disposed of assets
- Are thinking of making a residential property disposal
- Are planning to dispose of your own business
- Own shares which you acquired on issue rather than from another party
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
