Capital gains tax

How much does it raise?

How does it work?

Capital gains tax is charged on the gain, not the proceeds. If you bought for £50,000 and sold for £80,000, the gain is £30,000 and that is what is taxed.

Everyone gets an annual exempt amount, tax-free. It has been cut sharply: it was £12,300 in 2022-23 and is now £3,000, which has pulled far more people into the tax without any rate changing.

The rate depends on your income tax band, because the gain is stacked on top of your income. Basic-rate taxpayers pay less; higher-rate taxpayers pay more. Business Asset Disposal Relief gives a lower rate on qualifying business sales up to a lifetime limit.

Your main home is exempt through Private Residence Relief, which is why most people never encounter this tax. Assets held in ISAs and pensions are also outside it entirely.

The rates for 2026-27:

Rates: GOV.UK, Capital Gains Tax rates. Checked by hand 22 September 2026.

The gap between capital gains rates and income tax rates is the central argument. Income from work is taxed more heavily than income from selling assets, which creates an incentive to convert one into the other.

A higher-rate taxpayer selling shares

The same £30,000 earned as salary would have attracted 40% income tax plus National Insurance. That gap is the whole argument about this tax.

Work out capital gains tax on a sale

How has it changed?

How it got here, and why each change was made:

• 1965Capital gains tax is introduced, to stop income being converted into untaxed capital.
• 1982Indexation is added so that gains caused purely by inflation are not taxed.
• 1998Taper relief replaces indexation, cutting the rate the longer an asset is held.
• 2008Taper relief and indexation are both abolished for a flat 18% rate, greatly simplifying it and cutting the bill for many.
• 2016Rates are cut for most assets but kept higher for residential property, an explicit attempt to steer investment away from housing.
• 2023The annual exempt amount is cut from £12,300 to £6,000, then to £3,000 the following year.
• 2024The main rates rise to 18% and 24%, bringing them closer to but still below income tax rates.

Where does the money go?

Nowhere in particular. Capital gains tax is not earmarked. It goes into the Consolidated Fund with almost every other tax and is spent on whatever the government of the day decides. Anyone who tells you a particular tax "pays for" a particular service is describing an illustration, not a rule.

Because it is not earmarked, the only honest way to show what it pays for is by proportion. If capital gains tax receipts of £24.3bn were spent in the same proportions as all public spending in 2025-26, they would break down like this. It is an illustration of scale, not a statement about where those particular pounds went.

See for every £100 of tax for the full picture.

Does it change what people do?

Capital gains tax is unusually easy to time, because you choose when to sell. Receipts therefore jump ahead of an announced rise and slump afterwards, and estimates of what a rate change raises are unusually unreliable. That timing flexibility, not avoidance, is the main reason the revenue is volatile.

When a tax rise stops raising money looks at the cases where the effect has been large enough to move the revenue.

How does that compare with other countries?

In 2024 the UK raised 10.8% of GDP this way: fifth of the 12 countries compared here.

Most countries tax capital gains at a lower rate than income, on the argument that some of the gain is inflation and that the underlying profits were often taxed already through corporation tax. The size of the discount varies widely.

What are the arguments?

Both columns are set out as their strongest case, not as a preferred answer and a strawman. See how this site handles contested questions.