CGT Annual Exemption Cut to £3,000: What Investors Need to Know

For years, British investors could realise up to £12,300 of capital gains each tax year without paying a penny of Capital Gains Tax (CGT). That era is over. The annual exempt amount (AEA) was slashed from £12,300 to £6,000 in 2023/24, then halved again to £3,000 from 2024/25 onwards, where it has remained. For anyone holding investments outside an ISA or pension, this change has a material impact on after-tax returns.

This guide explains what has changed, who is most affected, and the practical strategies you can use to manage CGT in an era of very low annual exemption.

What Changed and Why It Matters

The annual exempt amount is the threshold below which capital gains are not taxed. Once you exceed it, gains are taxed at 18% (basic rate) or 24% (higher rate) on all assets — residential property, shares, funds, and other assets were equalised at these rates following the October 2024 Budget. Business Asset Disposal Relief (BADR) remains available for qualifying business assets at 18% for 2026/27 (having risen from 10% to 14% in April 2025, and then to 18% in April 2026), subject to a £1 million lifetime limit.

The practical effect of cutting the AEA to £3,000 is significant. An investor who sells £50,000 of shares that have doubled in value realises a £25,000 gain. After the £3,000 exemption, £22,000 is taxable. A higher-rate taxpayer pays £5,280 in CGT — a tax bill that would not have existed a few years ago when the gain fell within the old exemption.

For investors who rebalance regularly, who hold unwrapped investment funds, or who have accumulated significant unrealised gains, the cost of not planning around CGT has risen sharply.

Who Is Most Affected

The people most exposed to the lower AEA are:

• Unwrapped investors with portfolios outside ISAs and pensions, particularly those who inherited investments or built up holdings before wrappers became widely available.
• Higher-rate and additional-rate taxpayers facing 24% on all gains (the rate on non-residential assets rose from 20% to 24% at the October 2024 Budget, equalising with the residential rate).
• Frequent rebalancers who previously used the AEA to tidy their portfolios each year.
• Property investors with buy-to-let or second homes — the 24% residential CGT rate applies from the first pound of gain above the £3,000 AEA.
• Business owners and founders approaching a sale, where gains often run into millions even after BADR.

Strategies for Managing CGT With a Low Exemption

1. Bed and ISA

This is one of the most powerful and legitimate strategies available. You sell investments held in a general investment account (GIA), crystallising a gain, and immediately repurchase the same investment inside a Stocks and Shares ISA. Any future growth and income is then sheltered from CGT and income tax indefinitely.

The CGT on the crystallised gain may be unavoidable (if it exceeds the AEA), but all future gains are free. In an environment where the AEA is only £3,000, using the ISA wrapper for future returns is increasingly valuable. You can shelter up to £20,000 per tax year, or up to £40,000 for a couple using their combined allowance.

Timing matters: bed and ISA involves a sale and repurchase, so there is brief market exposure risk. Some platforms allow same-day repurchase; check your provider's process.

2. Use Spousal Transfer

Transfers between spouses and civil partners are exempt from CGT — the asset transfers at the original acquisition cost (known as "no gain, no loss"). This means you can transfer appreciated assets to a spouse who has unused AEA or a lower tax rate, and they can then sell at a lower tax cost.

For example, if one partner is a basic-rate taxpayer and the other is a higher-rate taxpayer, directing gains through the lower-rate partner reduces the tax rate from 24% to 18% (for non-property assets). Doubling up on two AEAs (£6,000 combined for a couple) is modest but worth taking.

Important: the transfer must be a genuine, outright gift. Artificial arrangements to cycle assets back immediately are challenged by HMRC.

3. Tax-Loss Harvesting

Tax-loss harvesting involves deliberately selling investments that are sitting at a loss to offset gains elsewhere in your portfolio. The net effect is that losses reduce your taxable gain, potentially bringing it within the £3,000 AEA.

Losses in the current tax year offset gains automatically. Losses in excess of current gains can be carried forward indefinitely (provided they are reported to HMRC on your tax return) and used against future gains.

A practical example: you have £8,000 of gains on holding A. You also hold investment B, which is sitting at a £5,000 loss. Selling B crystallises that loss, giving you a net taxable gain of £3,000 — exactly within the AEA.

Note the "30-day rule" (also called bed and breakfasting): if you sell an investment and repurchase an identical one within 30 days, HMRC treats the transaction as if it did not happen for CGT purposes. To avoid this rule, wait 31 days, repurchase through a spouse, or buy a similar-but-different investment (e.g., a different fund tracking the same index).

4. Deliberately Realising Gains in Lower-Income Years

CGT rates depend on your income tax position. If your income falls below the basic rate band in a given tax year — perhaps because you are between jobs, have taken a sabbatical, or have retired and are drawing down savings before taking your pension — you may pay 18% on gains rather than 24%.

Planning when to realise gains to coincide with lower-income years is a valuable tool. It requires forward-looking tax planning rather than reacting at year-end.

5. Pension Contributions to Reduce the Tax Rate

A large pension contribution reduces your adjusted net income, which can shift you from the higher-rate to basic-rate band. In theory, a gain taxed at 24% could become taxable at 18% if a pension contribution is timed appropriately. The pension also receives tax relief at the marginal rate, creating a double benefit in the right circumstances.

6. Maximise Pension and ISA Wrappers First

The most sustainable long-term strategy is to ensure that as much of your portfolio as possible is held inside tax-efficient wrappers — ISAs, SIPPs, and employer pensions — before accumulating unwrapped assets. Once inside, all growth and income is free from UK CGT and income tax. There is no maximum time limit, and the ISA can be passed on death (though for IHT purposes, ISAs are generally treated as part of the estate unless held in an AIM ISA).

Non-Residents and Capital Gains Tax

Non-Resident CGT (NRCGT)

If you are a UK non-resident, you are generally not liable to UK CGT on the sale of most assets — shares, funds, bonds, and most other investments can typically be sold free of UK CGT while you are non-resident. This is one of the genuine tax advantages of relocating abroad.

However, there are important exceptions:

• UK residential property: non-residents have been subject to NRCGT on UK residential property since April 2015.
• UK commercial property and land: subject to NRCGT since April 2019.
• Stakes in "property-rich" companies (companies where 75%+ of their assets are UK property): subject to NRCGT since April 2019.

Gains on UK property must be reported to HMRC within 60 days of completion, even if no tax is due.

The Temporary Non-Residence Rules

If you leave the UK and return within five complete tax years, any gains you realised while abroad on assets you owned before you left (or acquired within the first year of non-residence) may be "rebased" to the departure date and taxed on your return. This rule is designed to prevent people from briefly leaving the UK to dispose of assets CGT-free.

If you are planning to leave the UK in part for tax reasons, you should take professional advice on the split-year treatment, the Statutory Residence Test, and the temporary non-residence rules before disposing of significant assets.

Key Deadlines and Reporting

Capital gains must be reported on your Self Assessment tax return. If your only gains are from the disposal of investments (not property), you do not need to report if the total proceeds are below four times the AEA (currently £12,000) and the gain is below the AEA.

Property disposals must be reported via HMRC's CGT on UK Property service within 60 days of completion.

If you are carrying forward losses, you must report them to HMRC within four years of the end of the tax year in which they arose.

Compliance Note

Capital Gains Tax law is complex and subject to change. Rates, allowances, and rules referenced in this article reflect the position as of 2026 but may be updated in future Budgets. This article is for educational purposes only. You should seek personalised advice from a qualified tax adviser before making investment decisions based on CGT considerations. Tax treatment depends on your individual circumstances.

How Global Investments Can Help

Managing CGT efficiently is as much about planning and timing as it is about tax rates. Our advisers work with international investors and UK-based clients to review portfolios for latent gains, identify loss-harvesting opportunities, and ensure that the right assets are held in the right wrappers. If you hold significant unwrapped investments — whether in the UK or abroad — we can help you build a structured plan to reduce your CGT exposure over time. Contact our team to arrange a review.