Capital Gains Tax Explained: Rates, Allowances and How to Reduce It
Capital gains tax applies when you sell an asset for a profit — but the rate you pay depends on where you live, what you sold, and how long you held it. This guide explains capital gains tax rates for the UK and US, allowances, and legal ways to reduce your bill.
When you sell an investment or property for more than you paid, that profit can be taxed — and the tax is called capital gains tax (CGT). But the amount you owe varies enormously depending on where you live, what type of asset you sold, and how long you owned it. This guide explains the capital gains tax rates for the UK and US in 2025, the tax-free allowances, and the legitimate ways to reduce your bill.
To estimate your own bill in seconds, use our Capital Gains Tax Calculator. First, let's understand how CGT works.
What is capital gains tax?
Capital gains tax is a tax on the profit — the "gain" — you make when you dispose of an asset that has risen in value. Crucially, you're taxed on the gain, not the total sale price. If you bought shares for £10,000 and sold them for £16,000, your gain is £6,000, and only that £6,000 is potentially taxable.
Common assets subject to CGT include shares and funds held outside tax-sheltered accounts, second homes and buy-to-let property, valuable personal possessions, and business assets. You generally only pay when you realise the gain by selling — simply holding an asset that has risen in value doesn't trigger the tax.
UK capital gains tax rates for 2025/26
In the UK, everyone gets an annual exempt amount — £3,000 for 2025/26. Gains below this are completely tax-free. Above it, the rate you pay depends on your income tax band:
| Your income tax band | CGT rate (2025/26) |
|---|---|
| Basic rate taxpayer | 18% |
| Higher / additional rate taxpayer | 24% |
The gain is added on top of your income to work out which band applies, so a single large gain can be taxed partly at 18% and partly at 24%. To understand the income bands that decide this, see our guide to UK income tax rates and bands.
US capital gains tax rates for 2025
The US system hinges on how long you held the asset:
- Short-term gains (assets held one year or less) are taxed as ordinary income — at your normal federal rate, which can be as high as 37%.
- Long-term gains (held more than one year) get preferential rates of 0%, 15% or 20%, depending on your taxable income.
This is why the one-year mark matters so much in the US. Selling an asset just before a year is up can mean paying your full income tax rate, while waiting a little longer could drop the rate to 15%. Some higher earners also pay an additional Net Investment Income Tax. For how ordinary income rates work, see our guide to US paycheck deductions.
Worked example: selling shares in the UK
Suppose you're a higher-rate UK taxpayer who bought shares for £20,000 and sold them for £30,000, with £500 in dealing costs:
- Gain = £30,000 − £20,000 − £500 = £9,500
- Less the £3,000 annual allowance = £6,500 taxable
- Tax at 24% = £1,560
Your net profit after CGT is £9,500 − £1,560 = £7,940. A basic-rate taxpayer with the same gain would pay 18% and keep more.
Do you pay CGT on your main home?
Usually not. In the UK, your main residence is covered by Private Residence Relief, so no CGT is due when you sell it. In the US, you can typically exclude up to $250,000 of gain ($500,000 for married couples filing jointly) on your primary home if you meet the ownership and use tests. Second homes and investment properties do not get this relief — a key consideration in any rent vs buy decision involving a second property.
How to reduce your capital gains tax legally
There are several legitimate ways to cut a CGT bill:
- Use your annual allowance every year — in the UK, spreading disposals across tax years uses multiple £3,000 allowances.
- Offset losses — capital losses on other assets can be set against your gains.
- Hold US assets over a year — to qualify for the lower long-term rates.
- Transfer to a spouse — transfers between spouses are usually tax-free, letting you use both allowances and potentially a lower tax band.
- Use tax-sheltered accounts — gains inside a UK ISA or a US Roth account are generally free of CGT. Combined with compound interest, sheltering investments is one of the most powerful long-term strategies.
When and how to report it
In the UK, most gains are reported through Self Assessment, but UK residential property gains must be reported and paid within 60 days of completion. In the US, capital gains go on your annual tax return. Because the rules and deadlines are strict, it's worth estimating your liability early — our Capital Gains Tax Calculator gives you a quick figure to plan around.
Frequently asked questions
What is the capital gains tax rate?
In the UK for 2025/26, it's 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, after a £3,000 tax-free allowance. In the US, long-term gains are taxed at 0%, 15% or 20% depending on income, while short-term gains are taxed as ordinary income.
How do I calculate capital gains tax?
Work out your gain (sale price minus purchase price minus allowable costs), subtract any tax-free allowance, then apply the relevant rate for your income band and country. Our calculator does this automatically for the UK and US.
Do I pay capital gains tax on my home?
Generally no for your main home — the UK gives Private Residence Relief and the US allows an exclusion of up to $250,000 ($500,000 for couples). Second homes and investment properties are not exempt.
What is the difference between short and long-term capital gains?
In the US, short-term gains (held one year or less) are taxed as ordinary income, while long-term gains (held more than a year) get lower rates of 0%, 15% or 20%. Holding longer can significantly cut the tax.
How can I reduce capital gains tax?
Use your annual allowance, offset capital losses, hold US assets over a year for lower rates, transfer assets to a spouse, and keep investments in tax-sheltered accounts like an ISA or Roth account where gains are not taxed.
This article was last reviewed for the 2025/26 tax year. Figures are for guidance only — always verify with HMRC or the IRS, or consult a qualified tax adviser.