Capital Gains Tax

The Chancellor, John Healey announced changes to Capital Gains Tax (CGT) reliefs for business owners and investors as part of the Budget measures. From 6 April 2027, the lifetime limit for Business Asset Disposal Relief (BADR) will be reduced from £1 million to £500,000. The change will apply to qualifying disposals made on or after that date, subject to special provisions for certain contracts entered into before 6 April 2027 and for some share reorganisations and exchanges of securities.

BADR allows eligible individuals to pay a reduced rate of CGT on qualifying gains when they sell all or part of a business, or qualifying shares in a personal company. The lifetime limit applies to the total qualifying gains on which an individual can claim the relief, rather than the value of the business being sold. Reducing the limit means that less of an individual’s lifetime gains may qualify for the reduced rate.

The government has also announced a new Founders’ Relief, intended to support founders and early investors who have made a significant, long-term contribution to the development of high-growth and innovative UK companies. It is intended to provide a 10% CGT rate on qualifying disposals of shares or securities from 6 April 2027, subject to the final rules. A consultation on the new Founders’ Relief has been launched and will close on 30 November 2026. 

The Budget also announced a pilot Young Entrepreneurs Allowance in England, aimed at helping young people overcome the financial barriers to starting a business. Successful applicants will receive support towards their living costs during the first year of their business. The scheme is intended to help aspiring entrepreneurs who may have good business ideas but lack the personal financial support needed to get started. Further details of the pilot, including eligibility criteria and how to apply, are expected to be announced in due course.
 

Anyone selling a UK residential property usually needs to report the disposal to HMRC within 60 days of completion. The requirement applies even where the individual is not normally required to report Capital Gains Tax (CGT) through a tax return.

Any CGT due must normally be paid within the same 60-day period. Payment can be made online or by other methods accepted by HMRC, and taxpayers should allow sufficient time for the payment to reach HMRC by the deadline. Where the amount of tax due changes after the property disposal has been reported, the taxpayer may need to update the return and pay any additional amount due. Interest and penalties may apply where a gain is not reported and paid on time.

The gain must be calculated taking into account the costs associated with acquiring and disposing of the property as well as any qualifying improvement costs and any reliefs or exemptions that may apply. Private Residence Relief may be available where the property was the individual's main home.

Importantly, reporting and paying the tax through HMRC's online service does not remove the need to include the disposal on the annual self-assessment tax return where the individual is already registered for self-assessment. 

Non-UK residents have wider reporting obligations and must report all disposals of UK property or land, including where no CGT is due.
 

When a couple divorces or separates, they need to agree how their finances will be divided. This can include property, pensions, savings, investments and maintenance payments. Where possible, reaching an agreement without going to court can be quicker and less expensive. In England and Wales, however, an agreed division of assets will generally need to be approved by a court through a consent order if the couple want the agreement to be legally binding.

Tax is an important consideration when restructuring assets. Under current Capital Gains Tax rules, separating spouses and civil partners are given an extended period during which assets can be transferred between them on a "no gain, no loss" basis, meaning that no immediate Capital Gains Tax (CGT) liability arises. The normal period runs until the earlier of the end of the third tax year following the tax year in which the couple ceased living together, or the date on which their divorce, annulment or civil partnership dissolution becomes final.

There is an important further concession. Where assets are transferred between former spouses or civil partners in accordance with a formal divorce or separation agreement or court order, no gain/no loss treatment can apply without a time limit. This means that qualifying transfers may still benefit from the relief even where they take place some years after the couple separated.

No gain/no loss treatment does not normally eliminate the underlying capital gain. Broadly, the person receiving the asset takes over the transferring partner's CGT base cost, so the accumulated gain may become taxable when the recipient eventually disposes of the asset. Special rules can also apply to the former matrimonial home, including provisions affecting Private Residence Relief.

Anyone dealing with significant matrimonial assets should therefore take specialist legal and tax advice before assets are transferred. The timing and terms of the divorce or separation agreement can have important consequences for the eventual tax position.

When a sole trader or the partners in a partnership transfer a business to a limited company, Capital Gains Tax (CGT) may arise. This is because business assets are normally treated as being transferred at their market value, which may be considerably more than their original cost.

However, Incorporation Relief can allow some or all of the resulting gain to be deferred.

Broadly, the relief may be available where a business is transferred to a company as a going concern, together with all its assets, other than cash if desired, and the consideration received is wholly or partly in shares in the company.

Where the conditions are met, the gain eligible for relief is deducted from the CGT base cost of the shares received. This means that CGT is generally postponed until the shares are eventually sold or otherwise disposed of. If cash or other consideration is received alongside shares, the relief is normally restricted to the proportion of the transfer represented by shares. Part of the gain may therefore become immediately chargeable to CGT.

Incorporation Relief must now be claimed

An important change applies to businesses transferred to companies on or after 6 April 2026. Previously, Incorporation Relief applied automatically where the necessary conditions were satisfied. For transfers from 6 April 2026, the relief must instead be claimed. The claim will normally be made through the Self-Assessment tax return for the tax year in which the transfer takes place.

The claim must be made on or before the first anniversary of 31 January following the tax year in which the business transfer took place. For example, for a transfer during the 2026/27 tax year, the claim deadline will normally be 31 January 2029.

Failing to make a valid claim could therefore result in CGT becoming payable on gains arising when the business is transferred to the company.

Incorporation Relief is not necessarily the best option in every case. Before incorporating a business, it is worth considering the immediate CGT consequences, whether other reliefs may be available and the potential tax position when the company shares are eventually sold.

Professional advice should therefore be obtained before completing a business incorporation, particularly where the business has significant goodwill, property or other assets that have increased substantially in value.

Married couples and civil partners are taxed separately for Capital Gains Tax (CGT), meaning each person has their own annual tax position. However, with careful planning, transferring assets between spouses or civil partners can sometimes help reduce their overall tax bill.

Where spouses or civil partners are living together, most transfers of assets between them take place on a 'no gain, no loss' basis. This means there is no immediate CGT charge when the asset is transferred. Instead, the receiving spouse effectively utilises the original purchase cost and any gain is calculated based on this cost when they eventually dispose of the asset.

This can be particularly useful where one spouse pays tax at a lower rate or has unused CGT allowances. By transferring an asset before it is sold, the gain may be taxed more efficiently, potentially reducing the overall CGT liability.

Ownership is also important. If an asset is genuinely owned beneficially by one spouse, that spouse is responsible for reporting any gain. Couples should ensure that legal ownership reflects the intended beneficial ownership, particularly where jointly owned assets are involved.

Special rules also apply if a couple permanently separates. In many cases, transfers between former spouses or civil partners can still qualify for no gain, no loss treatment for up to the end of the third tax year after separation, while transfers made under a formal divorce or separation agreement or court order can continue to receive this treatment without any time limit.

If you are selling shares or other investments, you may incur Capital Gains Tax (CGT) on any profit, or 'gain', you make. You will need to work out your gain to determine if you need to pay tax, which depends on whether your total gains exceed your CGT allowance for the tax year. 

You usually pay CGT on total gains above your annual tax-free allowance, which is currently £3,000. If your gains exceed the allowance, you must report and pay CGT. This is usually done through self-assessment, with different reporting deadlines depending on the type of asset disposed of. The rate of tax depends on your income. Basic rate taxpayers pay 18% CGT on gains within the basic rate band and 24% on amounts above it. Higher and additional rate taxpayers generally pay 24% CGT on all gains.

You do not usually pay CGT when you give shares as a gift to your husband, wife, civil partner, or a charity. Additionally, shares including those held within an ISA, those in employer Share Incentive Plans (SIPs) and UK government gilts are exempt. Your gain is typically the difference between what you paid for your shares and the sales proceeds. 

You can deduct costs like stockbrokers' fees and Stamp Duty Reserve Tax (SDRT) from your gain. Various tax reliefs may also reduce or delay your CGT liability, including Business Asset Disposal Relief, Gift Hold-Over Relief, Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), and Rollover relief. Special rules apply for working out the cost of shares bought at different times in the same company, or if sold through an investment club.

It is important to calculate your gain, consider any applicable reliefs, and report to HMRC if your total gains exceed the annual allowance.

Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. It is the gain itself that is taxed, not the total amount you receive. For example, if you buy shares for £3,000 and sell them for £8,000, the taxable gain is £5,000.

CGT typically applies when you dispose of shares or other investments. Examples of assets or gains that are generally exempt from CGT, including investments held within ISAs or PEPs, UK government gilts and Premium Bonds, gambling winnings and carried interest (from 6 April 2026). A disposal includes selling, gifting, exchanging or receiving compensation for an asset. If you jointly own investments, you are taxed only on your share of any gain.

You only pay CGT on total gains above your annual tax-free allowance, which is currently £3,000. If your gains exceed the allowance, you must report and pay CGT. This is usually completed by filing a self-assessment tax return, with different reporting deadlines depending on the type of asset sold or gifted.

The rate of tax depends on your income. Basic rate taxpayers pay 18% CGT on gains within the basic rate band and 24% on amounts above it. Higher and additional rate taxpayers generally pay 24% CGT on all gains.

Losses on investments can be used to reduce gains, and other reliefs may also be available. It is important to keep records of purchase costs, sale proceeds and other associated fees to calculate the correct taxable amount.

UK residents are generally liable to Capital Gains Tax (CGT) when they dispose of overseas property at a gain. A disposal includes selling, gifting, or otherwise transferring ownership of a property located outside the UK.

CGT is chargeable on the profit made on the disposal at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. You can usually reduce your gain by deducting allowable costs, such as legal fees, estate agent fees and the cost of capital improvements (but not routine maintenance).

If you are a UK resident but your permanent home (“domicile”) is abroad, special rules may apply which can affect how gains are taxed and reported.

You may also be liable to tax in the country where the property is located. Where the same gain is taxed in both jurisdictions, double taxation relief may be available depending on the terms of the relevant tax treaty between the UK and that country.

Non-residents may still be within the scope of UK CGT on overseas property in certain circumstances, including where they return to the UK within five years of leaving.

Given the complexities between UK rules, overseas tax systems and residency status, it is important to consider your tax obligations in both jurisdictions when disposing of overseas property.

Business Asset Disposal Relief (BADR) applies to the sale of a business, shares in a trading company, or an individual’s interest in a trading partnership. When this relief is available, a reduced 18% rate (2026-27) of Capital Gains Tax (CGT) applies. 

To qualify for BADR, certain conditions must be met:

Sale of a Business or Business Closure:

• You must be a sole trader or business partner; and
• You must have owned the business for at least 2 years leading up to the sale or closure.
• You must dispose of your business assets within 3 years to qualify.

Sale of Shares or Securities:

Both of the following must apply for at least 2 years up to the date you sell your shares:

• You must be an employee or office holder of the company (or a company within the same group).
• The company’s main activities must involve trading, not non-trading activities like investment, or it must be the holding company of a trading group.

Additional rules can apply if the shares are from an Enterprise Management Incentive (EMI).

Currently, you can claim a total of £1 million in BADR over your lifetime, allowing you to qualify for the relief multiple times. The lifetime limit may be higher if you sold assets before 11 March 2020. Investors' Relief CGT rates mirror those for BADR and have also been set at 18% since 6 April 2026.

Many homeowners assume that if a property has been their main residence at some point, any gain made on sale will automatically be free from Capital Gains Tax (CGT). Whilst in many cases, this is correct there are exceptions. For example, periods spent living away from your home can sometimes reduce the amount of Private Residence Relief available.

The good news is that some periods always qualify for relief. In most cases, the final 9 months of ownership are automatically exempt, provided the property was your only or main residence at some stage. There can also be relief for up to the first two years of ownership where a property was being built, renovated or where you were unable to move in immediately.

Additional relief may also be available where you temporarily lived elsewhere. Absences of up to three years for any reason can qualify, while periods of up to four years may qualify where you had to work elsewhere in the UK. Time spent working overseas can also qualify for relief in full. Normally, you must have lived in the property before and after the absence unless your work prevented your return.

Where more than one property is owned, the rules become more complicated as generally only one property can qualify as your main residence at any one time. Married couples and civil partners are also normally restricted to one main residence between them.

These rules can have a significant impact on the amount of CGT payable when a property is sold, particularly where second homes or lengthy absences are involved.