Capital Gains Tax Annual Exempt Amount – Use It or Lose It!
The 2025/26 tax year comes to an end on 5 April 2026. If you are thinking of selling assets that may realise a gain and have yet to use your 2025/26 capital gains tax annual exempt amount, it may be worth making the disposal before the end of the current tax year.
All individuals have an annual exempt amount for capital gains tax purposes. Net gains for the year (after the deduction of allowable losses for the tax year) are free of capital gains tax where they are sheltered by the annual exempt amount. For 2025/26, it is set at £3,000 and is worth £540 to a basic rate taxpayer and £720 to a higher rate taxpayer. If the annual exempt amount is not used in the tax year, it is lost.
Example
Ben is thinking of selling two lots of shares, one that will realise an expected gain of £4,000 and one that will realise an expected gain of £5,000. He is having a new kitchen in June 2026 and needs to sell the shares to finance the project.
Ben is a higher rate taxpayer. He has not used his annual exempt amount for 2025/26.
If Ben waits until May to sell the shares, he will realise a gain of £9,000 in the 2026/27 tax year. Setting his 2026/27 annual exempt amount of £3,000 against the gain reduces the chargeable gain to £6,000 on which he will pay capital gains tax at 24%, giving rise to a tax bill of £1,440.
However, if Ben sells one lot of shares before 6 April 2026 realising a gain of £4,000 against which he can set his annual exempt amount for 2025/26 of £3,000, this will reduce the chargeable gain to £1,000 on which he will pay capital gains tax of £240. If he sells the remaining shares after 5 April 2026, he will be able to set his 2026/27 annual exempt amount of £3,000 against the gain of £5,000, reducing his chargeable gain to £2,000 on which he pays tax of £480.
By selling some of the shares in 2025/26 and using his annual exempt amount for 2025/26 which would otherwise have been wasted, Ben is able to reduce the capital gains tax payable by £720.
Spouses and civil partners
Spouses and civil partners can take advantage of the special rules that allow them to transfer assets between them at a value that gives rise to neither a gain nor a loss, preventing the waste of one spouse’s annual exempt amount.
If Julie is planning on selling shares in March 2026 which would give rise to a gain of £7,000, and neither she nor her wife Jane has used their annual exempt amount for 2025/26, Julie could transfer 3/7th of her shares to Jane to sell, using Jane’s annual exempt amount and reducing the overall tax bill significantly.
Need advice on this topic? Get in touch with Severn Accounting — we serve businesses across Worcester and Birmingham.