What Is the Annual Exemption for Capital Gains Tax?
The Annual Exempt Amount (AEA) for Capital Gains Tax is the amount of gains you can realise in a tax year without paying any CGT. For 2025/26, this is £3,000. Any gains above this threshold are taxed at the applicable CGT rate. The AEA is a use-it-or-lose-it allowance — if you do not use it in a tax year, you cannot carry the unused portion forward.
A Significant Reduction
The AEA has been cut dramatically in recent years. It was £12,300 as recently as 2022/23, reduced to £6,000 for 2023/24, and then to £3,000 from April 2024. This has significantly increased the CGT liability for investors and property sellers who previously relied on the generous exemption to realise gains each year without tax consequences.
Who Gets the Annual Exempt Amount?
Every UK-resident individual has their own AEA of £3,000. Married couples and civil partners each have a separate allowance, giving a combined household exemption of £6,000 — a valuable planning point when both partners hold assets. Trusts have a reduced AEA (generally half the individual amount, i.e. £1,500), except for trusts for disabled beneficiaries which may qualify for the full individual amount.
How the Calculation Works
You add up all gains from disposals in the tax year (after deducting any allowable losses and the cost of the assets). If the net gains exceed £3,000, you pay CGT on the excess. If you have capital losses from the same tax year, they must be offset against gains first before the AEA is applied. Losses from earlier years can be carried forward but are also only offset down to the AEA level — you cannot use previous losses to take you below the AEA and claim a loss in the current year.
Using the AEA Effectively
With only £3,000 of tax-free gains per year, planning is more important than ever. Strategies include: realising gains gradually across multiple tax years rather than in one large disposal; transferring assets to a spouse before sale so both AEAs can be used; investing through ISAs so future gains are sheltered entirely; using capital losses from previous years to reduce taxable gains.
Reporting Requirements
Even if your gains are below the AEA, you must still report certain disposals to HMRC. For residential property, you must report and pay any CGT within 60 days of completion regardless of the amount. For other assets, gains are reported via Self-Assessment. If you make gains above £3,000 in a year but are not registered for Self-Assessment, you must notify HMRC.
Non-Residents and CGT
Non-UK residents are subject to CGT on disposals of UK residential and commercial property and interests in property-rich companies. The CGT AEA is available to non-residents for UK property gains, but they must report all qualifying disposals within 60 days of completion through HMRC's non-resident CGT return service.
