Every UK tax resident individual is entitled to an annual exempt amount (AEA), as defined by TCGA 1992 s.1K - commonly called the capital gains tax allowance or CGT-free allowance. This is the amount of capital gains you can make in a tax year before you owe any CGT. For the 2024/25 and 2025/26 tax years, the annual exempt amount is £3,000.
How the annual exempt amount works
The annual exempt amount is a tax-free threshold, not a deduction from each individual gain. As set out in GOV.UK capital gains guidance, it works as follows:
- Calculate your total chargeable gains for the tax year across all disposals.
- Deduct any allowable capital losses made in the same tax year.
- Deduct any losses brought forward from earlier years (but only enough to reduce net gains to £3,000).
- Deduct the annual exempt amount of £3,000 (or the remaining net gains if less than £3,000).
- Pay CGT on whatever remains at the appropriate rate.
If your net gains after losses are £3,000 or less, you owe no CGT (though you may still need to report your disposals - see the SA108 guide).
Use it or lose it
The annual exempt amount cannot be carried forward. If you do not make any capital gains in a tax year, you cannot save the £3,000 allowance for the next year. Each tax year starts fresh with a new allowance. This is different from capital losses, which can be carried forward indefinitely.
Historical annual exempt amounts
The annual exempt amount has been dramatically reduced in recent years. The following table shows the individual AEA for each tax year:
| Tax year | Annual exempt amount |
|---|---|
| 2020/21 | £12,300 |
| 2021/22 | £12,300 |
| 2022/23 | £12,300 |
| 2023/24 | £6,000 |
| 2024/25 | £3,000 |
| 2025/26 | £3,000 |
The allowance was frozen at £12,300 from 2020/21 through 2022/23, then halved to £6,000 for 2023/24, and halved again to £3,000 from 2024/25 onwards. This reduction was enacted through amendments to TCGA 1992 s.1K and announced in the Autumn Statement 2022 by then-Chancellor Jeremy Hunt.
Impact of the reduction
The reduction from £12,300 to £3,000 has had a significant impact on ordinary investors. Many people who previously had no CGT liability now find themselves owing tax on relatively modest gains. For example:
Real impact example
An investor with £5,000 in net gains would have paid no CGT under the old £12,300 allowance. Under the current £3,000 allowance, they face tax on £2,000 of gains.
At the higher rate of 24%, that is a CGT bill of £480 - for gains that would previously have been entirely tax-free.
More investors now exceed the reporting thresholds for the SA108 form, meaning more people need to file Self Assessment returns even if their gains are modest.
If you regularly sell investments, it is now more important than ever to accurately calculate your gains and losses, and to make use of available reliefs and planning strategies.
Married couples and civil partners
Each individual gets their own annual exempt amount. Married couples and civil partners each receive the full £3,000 allowance separately. This means a couple can collectively make up to £6,000 in capital gains per tax year without paying CGT.
Transfers of assets between spouses and civil partners are treated as taking place at no gain and no loss for CGT purposes. This opens up a legitimate planning opportunity: if one partner has used their allowance but the other has not, transferring an asset before disposal can ensure both allowances are utilised. However, the transfer must be a genuine transfer of beneficial ownership.
Trusts
Trusts receive half the individual annual exempt amount. For 2024/25 and 2025/26, this means trusts have an AEA of £1,500. Where a settlor has created multiple trusts, the allowance is divided equally between them, subject to a minimum of one-fifth of the individual AEA (£600).
Personal representatives
The personal representatives of a deceased person's estate are entitled to the full individual annual exempt amount for the tax year of death and the following two tax years. After that, no AEA is available.
Planning around the reduced allowance
With the allowance at just £3,000, investors may want to consider the following strategies to manage their CGT liability:
- Use your ISA allowance. Gains within an ISA are entirely exempt from CGT. Maximising your ISA contributions (£20,000 per year) shelters future gains.
- Crystallise gains annually. If you plan to sell a large holding, consider selling in stages across multiple tax years to use each year's annual exempt amount.
- Harvest losses. Selling underperforming investments to realise losses can offset gains. Be mindful of the 30-day rule if you intend to repurchase the same shares.
- Use your spouse's allowance. Transfer assets to a spouse before disposal so both annual exempt amounts are used. Both partners must be UK resident.
- Contribute to a pension. Pension contributions can extend your basic-rate band, which may keep more of your gains taxed at 18% rather than 24%.
How FiscalFox helps
FiscalFox automatically applies the annual exempt amount when generating your capital gains report. It shows your total gains, total losses, the AEA deduction, and the resulting net chargeable gain - giving you a clear picture of your CGT liability and whether you need to file.