Capital Gains Tax: The Annual Exempt Amount Explained

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Published on July 8, 2026

The Annual Exempt Amount (AEA) is a valuable statutory allowance that enables individuals in the UK to realize a specific level of capital growth each tax year completely free from Capital Gains Tax (CGT). However, following aggressive legislative changes, the tax-free ceiling sits at its lowest historical level, dragging a significantly higher volume of casual investors and property owners into the compliance net.

1. The Current Allowance and Historical Reductions

For the active 2026/27 tax year, the Annual Exempt Amount remains frozen at its modern baseline:

The Individual Exemption: £3,000 per year for individuals, personal representatives, and executors.
The Trust Exemption: £1,500 per year for most standard settlements and non-disabled trusts.

This current figure follows a rapid, multi-year legislative contraction designed to expand the treasury's tax harvesting footprint:

[2022/23: £12,300] > [2023/24: £6,000] > [2024/25 through 2026/27: £3,000]

Because the individual allowance dropped by over 75% in a brief timeframe, smaller disposals—such as liquidating a minor crypto holding or a modest stock portfolio—that once fell safely within the historic exemption now trigger immediate mandatory tax bills and filing obligations.

2. The Statutory Calculation Stack: Applying Losses First

The £3,000 allowance cannot simply be applied to any gross gain you choose. HMRC mandates a strict, sequential ordering system when parsing your annual disposals:

{/ Reason: Reversing this sequence or failing to net current-year losses before applying the allowance results in an invalid tax calculation and can cause taxpayers to miscalculate their carry-forward losses. /} Aggregate all capital disposals executed across the active tax year (6 April through 5 April). Subtract the original acquisition costs and allowable transaction fees (like estate agent or broker commissions) to establish your baseline gross figures. Deduct your current-year capital losses directly from your current-year capital gains. You must net these figures completely, even if doing so drops your total net gains far below the £3,000 tax-free allowance mark. Apply the £3,000 AEA threshold against your remaining net profit. If your remaining gains sit below £3,000, your liability drops to zero. Note that any unused portion of the £3,000 allowance is permanently lost at midnight on 5 April; it cannot be carried forward to the next tax year. If your net gains still exceed £3,000 after Step 3, you can now bring forward unused capital losses from previous tax years. You only deduct enough historical losses to bring your remaining taxable profit down to exactly £3,000, preserving the rest of your historical losses for future years.

3. Active Capital Gains Tax Rates

Once your gains break through the £3,000 allowance buffer, the excess profit is taxed based on your total UK income profile. Unlike previous tax frameworks, residential property and standard financial assets (like shares and crypto) now share a unified rate structure:

Taxpayer Income Band Placement	Unified Standard Asset & Residential Property Rate	Special Business Asset Disposal Relief (BADR) Rate
Basic Rate Taxpayer Band (Income up to £37,700)	18%	18% (Increased from 14% from 6 April 2026)
Higher / Additional Rate Bands (Income over £37,700)	24%	18% (Increased from 14% from 6 April 2026)

The Basic Rate "Absorption" Trap: If you are a basic rate taxpayer, your unused basic rate income band absorbs your capital gains. For example, if you have £7,700 of headroom left in your basic rate income band, the first £7,700 of your taxable capital gain is taxed at 18%. Any remaining balance above that headroom is pushed into the higher tier and taxed at 24%.

4. Key Record-Keeping and Compliance Mandates

The small size of the modern allowance removes the safety margin for casual record-keeping. If your total gross asset disposals in a single tax year exceed £12,000, you are legally required to report the transactions on your Self Assessment return, even if your net profit is entirely under the £3,000 allowance and no tax is due.

To protect your calculations during an HMRC compliance check, you must maintain an evidential audit trail containing:

Original contract notes, invoices, and bank statements verifying the exact asset purchase price and date.
Detailed ledgers charting any allowable capital enhancement costs (such as building an extension on a property, but excluding routine repairs).
Official completion statements and asset disposal receipts detailing your final sale prices.

Key Points to Remember

The Annual Exempt Amount is fixed at £3,000 for individuals and £1,500 for standard trusts.
Unused allowances cannot be rolled over; if they are not used by 5 April, they are permanently lost.
Current-year capital losses must be subtracted from gains before the £3,000 exemption is applied.
CGT rates are unified at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers across both property and shares.
The Business Asset Disposal Relief (BADR) tax rate has increased to a flat 18% for disposals executed on or after 6 April 2026.
You must declare your disposals if your gross sale proceeds break through the £12,000 reporting threshold.

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