The following article is an excerpt taken from the guide 101 Practical Tax Tips 2025/26 edition.
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If you have capital gains within your portfolio then it is important to utilise the annual capital gains tax exempt amount. The annual exempt amount has been significantly reduced in recent years, reducing the potential tax savings that are available.
For the 2025/26 tax year, this is worth £3,000 per person. Any net gains (after deducting allowable losses for the tax year) that are covered by the annual exempt amount can be enjoyed free from capital gains tax.
As each individual has their own annual exempt amount, spouses and civil partners can make net gains of £6,000 in 2025/26 before any capital gains tax is payable. By using the no gain/no loss rules to transfer assets between them before the sale, it is possible to ensure that one spouse or civil partner’s annual exempt amount is not wasted (see Tip 5).
It is important to remember that the annual exempt amount is lost if it is not used in the tax year – it can’t be carried forward. Where, for example, an individual has shares to sell, they could sell off just enough shares (or other qualifying assets) to realise a gain equivalent to the annual exemption. Once gains equal to the annual exemption have been realised, any further disposals should ideally be deferred until the following tax year to avoid triggering a capital gains tax liability.
It should also be noted that there is no relief for inflationary gains and where an asset that has been held for a long time is disposed of, the gain is effectively treated as if it had all been made in the year of disposal. Only the annual exempt amount for that year is available to set against the gain. As the annual exempt amount is lost if not used in the tax year, it is not possible to utilise unused annual exempt amounts from earlier tax years to set against the gain arising on an asset that has been held for many years.
Utilising Your Annual CGT Exemption
Smart John
John has a significant share portfolio and is a higher rate taxpayer.
For 2025/26, he will be liable to capital gains tax at 24% on any chargeable gains in excess of his capital gains tax annual exempt amount of £3,000.
He has held his shares for a number of years and has always made use of his annual exemption for capital gains tax purposes, selling sufficient shares to realise a gain approximately equal to the capital gains tax exempt amount (£3,000 for 2025/26). He makes no further disposals in the tax year once his annual exemption has been utilised.
By utilising his annual exemption for 2025/26, he is able to realise tax-free gains of £3,000. Had he already used his annual exempt amount, he would have had to pay capital gains tax of £720 (£3,000 x 24%) on the gain on the shares.
By using his annual exemption each year and only making disposals within the annual exemption rather than disposing of further shares once his annual exemption has been used, he can dispose of his shares without having to pay any capital gains tax on any gains that arise.
He reinvests the sale proceeds in further shares.
Not So Smart Jack
Jack does not spread the sale of his shares over several years but instead sells shares and realises gains of £35,000 in 2025/26. He has other income of £60,000. As he is a higher rate taxpayer, he pays capital gains tax at 24%.
The annual exemption of £3,000 is set against the gain of £35,000, leaving net chargeable gains of £32,000. He pays tax on these gains of £7,680 (£32,000 x 24%), leaving him with £27,320 after tax to reinvest.
Compare this with John, who is able to reinvest all his sale proceeds by realising his gains completely tax-free by selling his shares over a number of years and making best use of the annual exempt amount.
Note: the significant reduction in the annual exempt amount in recent years has seriously curtailed the amount of tax-free gains that can be made each year. Increases in the capital gains tax rates from 31 October 2024 have increased the tax payable on net gains realised in excess of the annual exempt amount.
