Academy / Plain English
Capital gains tax in 2026/27, explained without jargon
Most people meet capital gains tax by accident — after they've sold. Here's how it actually works, so you can see it coming.
Capital gains tax (CGT) is the tax you pay on the profit when you sell an investment — not on the amount you sell. That single distinction causes more confusion than anything else in UK investing, so it's worth being precise about it from the start.
What CGT actually is
If you buy shares for £10,000 and sell them for £14,000, you haven't made a £14,000 gain. You've made a £4,000 gain, and only that £4,000 is in scope. Costs of buying and selling — dealing charges, stamp duty on purchase — reduce it further.
Crucially, CGT is triggered by disposal, not by growth. An investment that has doubled on paper generates no tax bill at all until you sell, transfer, or otherwise dispose of it. This is why the phrase "unrealised gain" matters: it's a gain that exists, but hasn't yet met the tax system.
The annual exempt amount
Every individual has an annual exempt amount — a slice of gains you can realise each tax year with no CGT to pay. It applies per person, per tax year, and it does not roll forward. If you don't use it by 5 April, it's gone.
For the 2026/27 tax year the annual exempt amount is £3,000. It has fallen substantially over recent years, which is why gains that would once have gone unnoticed now produce real tax bills for ordinary investors.
Worth knowing: because the allowance is per person, spouses and civil partners each have their own. Transfers between spouses and civil partners are generally made on a "no gain, no loss" basis — one of the few genuinely simple reliefs in the system.
What rate you pay
CGT is not a flat tax. The rate depends on your income tax band and on what you sold. Your taxable gain is effectively stacked on top of your income to work out which band it falls into — so a large gain can straddle two rates.
| Your income tax band | Gains on shares & funds |
|---|---|
| Basic rate | 18% |
| Higher / additional rate | 24% |
Residential property that isn't your main home is taxed at higher rates and has its own reporting deadlines. Your main home is normally covered by Private Residence Relief.
A worked example
Priya is a basic-rate taxpayer. Over four years she invested £16,000 into a fund held in a general investment account, and it's now worth £22,000. She sells the lot.
- Proceeds: £22,000
- Cost: £16,000
- Gain: £6,000
- Less annual exempt amount: −£3,000
- Taxable gain: £3,000 → CGT at 18% = £540
Had Priya sold half in March and half in April — either side of the tax year end — she would have used two years' allowances and likely paid nothing at all. Same investment, same total proceeds, different timing.
Timing and the tax year
The UK tax year runs from 6 April to 5 April. Gains fall into the year the disposal happens, which makes the days either side of 5 April genuinely consequential. Losses matter too: capital losses in the same year are set against gains automatically, and unused losses can be carried forward indefinitely if you report them.
One trap worth naming: the 30-day rule. If you sell an investment and buy the same one back within 30 days, the disposal is matched against the repurchase, and the intended gain crystallisation doesn't work as expected.
Where ISAs change everything
Investments held inside a Stocks & Shares ISA are outside CGT entirely. No annual exempt amount to ration, no rate to work out, no reporting. The same is true of a SIPP, though pension access rules apply instead.
This is why the ISA allowance is treated as valuable rather than administrative: it isn't just a wrapper, it removes an entire tax from the equation for everything inside it.
Four common mistakes
- Assuming there's nothing to pay because it's "just funds." Funds, ETFs and investment trusts held outside a wrapper are all in scope.
- Forgetting the allowance doesn't carry over. Unused allowance simply disappears on 5 April.
- Not tracking cost. Without accurate purchase records, gains get overstated — and overpaid.
- Discovering the bill after selling. By then the only variable you controlled — timing — is already spent.
See your CGT position before you sell
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Join the waitlistThis article is general educational information about UK tax rules, not personal advice or a recommendation. Tax treatment depends on your individual circumstances and may change. Figures reflect our understanding of the rules for the 2026/27 tax year at the date of publication. If you are unsure, consider speaking to a tax or financial adviser authorised by the FCA.
