On the face of it, Capital Gains Tax (CGT) is pretty easy to understand: it’s the tax you pay when you sell an asset that has grown in value. You only pay CGT on the profit you made from the sale, not the overall sum you received.
Assets may include a business, shares, a second property (including overseas property, if you’re registered to pay tax in the UK), and even a family heirloom. As usual with tax matters, the devil’s in the detail.
One important relief to be aware of is Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief.
This reduces the rate of CGT you pay when disposing of qualifying business assets, subject to strict conditions and a lifetime limit of £1m. Because of its significance to company owners, we cover both CGT and BADR in this guide.
What’s in this guide?
- How much CGT will you pay?
- CGT-free disposals and exemptions
- Examples of CGT in practice
- What is Business Asset Disposal Relief (BADR)?
- Future changes to BADR from April 2025
- Will I qualify if I sell my business?
- What about shares, loans and other disposals?
- How do I claim BADR?
How much CGT will you pay?
The amount of CGT you pay depends on the asset in question and your income.
If you’re a basic rate income taxpayer, you’ll pay 18% CGT on any gains you make from the sale of an asset; higher income rate taxpayers face a 24% CGT charge.
These rates increased from 10% and 20%, respectively, following the 2024 Autumn Budget.
Higher rates are also applied to gains on the sale of residential investment properties – 18% and 28% for basic rate and higher rate payers, respectively. These rates remained unchanged in the Budget.
Capital gains below the 2025/26 level of £3,000 per year are tax-free.
Pensions and investments, such as ISAs, are CGT-free, although you will have to pay CGT on shares and any assets you inherit and subsequently dispose of.
CGT-free disposals and exemptions
Some gifts, such as those exchanged by a husband and wife and/or civil partners in a given tax year, may also be considered CGT-free. This only applies if you live together and intend to keep the gift.
If you split up or the item was sold, CGT may be applicable.
Gifts made to charities are also CGT-free, and you won’t have to pay tax on lottery winnings, premium bonds, betting wins, or government gilts.
Examples of CGT in practice
Selling a property
If you sell a property other than your own home, such as a holiday home or a buy-to-let property, you’ll have to pay CGT on the profit. You can include any legal fees, stamp duty, estate agent’s fees incurred in the purchase and sale, add your annual exemption (£3,000 in 2025/26), and deduct the total amount from the gain made on the asset. You pay CGT on the balance at either 18% or 24%, depending on your income tax status. You also have to report the disposal of a second home to HMRC within 60 days if there is a CGT liability.
Shares
If you buy shares in a quoted company and then sell them, you will pay CGT on your gain. For example, if you buy £10,000 worth of shares and sell them for £100,000, you’d pay CGT on £90,000, less the annual exemption of £3,000 and factoring in your income tax status of 18% or 24%.
Selling a business
If you sell a part or all of a company you own, you’ll have to pay tax on your gain. However, if your shareholding is 5% or more and you are a higher-rate taxpayer, you may qualify for Business Asset Disposal Relief (see below).
Selling valuables and heirlooms
Except for gains made from the sale of your car, which is CGT-free, you have to pay tax on items valued at more than £6,000. This could include artwork, jewellery, stamps, and coins. Once you calculate any gain you’ve made on the sale and subtract your annual allowance, you’ll be able to see if any CGT is payable.
What is Business Asset Disposal Relief (BADR)?
To encourage entrepreneurship in the UK, eligible individuals pay a lower rate of CGT on the disposal of business assets, subject to a lifetime limit.
Entrepreneurs’ Relief is now known as Business Asset Disposal Relief (since April 2020).
Usually, when you dispose of an asset you own, you have to pay CGT.
For valuable assets, this tax burden can be large – sometimes even dissuading people from developing them. BADR exists to encourage people to build successful businesses without worrying about excessive taxation on disposal.
If you qualify, you pay CGT at a reduced rate on the gains you make from selling business assets. This is subject to a lifetime limit of £1m.
Future changes to BADR from April 2025 onwards
In the 2024 Autumn Budget, the Chancellor announced that the CGT rate for BADR disposals would rise from the historic 10% rate.
- From April 2025, the BADR rate rose to 14%
- From April 2026, the BADR rate will increase to 18%
The £1m lifetime limit remains unchanged.
Will I qualify if I sell my business?
Not everyone who sells a business can qualify for BADR – it’s important to check in advance rather than assume and face an unwelcome surprise later.
If you dispose of either part or all of a business in which you were a shareholder, sole trader, or partner, you may qualify – even if you disposed of the asset after a business closed down.
This only applies if you have owned the business for more than a year before the sale. If you’re closing it down, you must sell the assets within three years; otherwise, your relief eligibility may be at risk.
What about shares, loans and other disposals?
If you held shares (and voting rights) in a company, then you may claim BADR on the sale of the firm – provided that you owned at least 5% of the company or had the option to acquire them at least one year before the sale.
Before you can do this, you must have been employed by the firm or held office in the company’s group for at least a year, and the firm must have been a trading company (not mainly an investment company).
If you lent an asset to your business, you may also claim relief on its sale. This only applies if you’ve already sold 5% of the business, or your assets were used for up to a year before the shares were sold.
Some entrepreneurship schemes also qualify. For example, if you acquired shares after 5 April 2013 in an Enterprise Management Incentive (EMI) scheme, you can claim relief.
How do I claim BADR?
The process for claiming is straightforward. Work out your total profit from the sale of all the assets you believe qualify for BADR.
You may benefit from seeking your accountant’s advice to ensure the numbers are correct.
Deduct any qualifying losses and reduce your profit by the current CGT tax-free allowance (currently £3,000 for 2025/26).
You then apply the reduced BADR rate to the remaining profit.
Most individuals can claim BADR via their Self Assessment tax return. HMRC provides more details on the official BADR guidance pages.
