What is Annual Exempt Amount (CGT)?

The Annual Exempt Amount (AEA) is a tax-free threshold for Capital Gains Tax. Every individual gets this allowance each tax year, meaning the first slice of your total net capital gains is completely free of CGT. For 2025/26, the AEA is £3,000 per person. This is a significant reduction from £12,300 in 2022/23 and £6,000 in 2023/24 -- the government has progressively cut this allowance.

The AEA applies to your total net gains for the year, not per transaction. So if you sell three assets and make gains of £2,000, £1,500, and £500, your total gains are £4,000. Your £3,000 AEA shelters the first £3,000, leaving only £1,000 subject to CGT. If you also made a loss on another disposal, that loss is offset against gains first, and the AEA is applied to the remaining net gain.

Critically, the AEA is a 'use it or lose it' allowance. Unlike capital losses, which can be carried forward indefinitely, any unused AEA at the end of the tax year disappears forever. This makes timing your disposals important -- if you have assets you intend to sell, spreading disposals across tax years can allow you to use multiple years' AEA.

The AEA is available to individuals and to trustees of settlements. Trustees receive a lower AEA, which is half the individual amount (£1,500 for 2025/26), further divided if the settlor has created multiple trusts. Companies do not get an AEA -- they pay Corporation Tax on all chargeable gains through their CT600 return.

At the end of each tax year, you calculate your total chargeable gains and total allowable losses. Current-year losses are automatically deducted from gains. If gains still exceed the AEA, you can then deduct any brought-forward losses from previous years, but only enough to bring the net gain down to the AEA level -- you do not have to waste brought-forward losses below the exempt amount.

For example, say you have £15,000 of gains and £5,000 of current-year losses. Your net gain is £10,000. You then apply the £3,000 AEA, leaving £7,000 taxable. If you also had £4,000 of losses brought forward from a prior year, you could use those to reduce the £7,000 to £3,000 -- but you could also choose to carry them forward if you expect larger gains next year.

The AEA is applied after all reliefs and exemptions (such as Private Residence Relief or EIS deferral relief) have been applied. It is the final deduction before calculating the CGT due.