Tax

What is Annual Exempt Amount (CGT)?

The annual exempt amount is the amount of capital gains you can make each year before paying CGT.

Current Rate (2025/26)

£3,000 (2025/26)

Example

Make £10k capital gain. First £3k is exempt. Pay CGT on remaining £7k.

Key Dates

Use it or lose it - doesn't carry forward

How Annual Exempt Amount (CGT) Works in Practice

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.

Step by Step

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.

Practical Tips

  • Plan disposals across tax years -- selling £6,000 of gains over two years uses two AEAs (£6,000 total), meaning zero CGT versus £600 in a single year
  • Consider transferring assets to your spouse before disposal to double the available exempt amount to £6,000
  • Review your portfolio annually in March -- if you have unrealised gains, consider 'bed and ISA' or 'bed and spouse' transactions to crystallise gains within the AEA
  • Keep brought-forward losses for years when you expect gains above the AEA -- do not waste them when gains are already below the threshold

Common Mistakes to Avoid

  • Assuming unused Annual Exempt Amount carries forward to the next year -- it does not, it is lost
  • Selling all assets in a single tax year instead of spreading disposals across years to use multiple AEAs
  • Forgetting that brought-forward losses should only reduce gains to the AEA level, not below it
  • Not realising the AEA has reduced to £3,000 from the previous £6,000 -- many people still assume the old higher figures

Frequently Asked Questions

What is the Annual Exempt Amount for 2025/26?

The AEA for 2025/26 is £3,000 per individual. This is down from £6,000 in 2023/24 and £12,300 in 2022/23.

Can my spouse and I each use our own AEA?

Yes, each individual gets their own £3,000 AEA. You can transfer assets between spouses on a no-gain-no-loss basis before selling, so that each of you can sell and utilise your own AEA.

Do I need to report gains below the AEA?

If your total disposal proceeds exceed four times the AEA (£12,000 for 2025/26), you must report them on your Self Assessment return even if no tax is due. If proceeds are below this threshold and no tax is payable, you generally do not need to report.

Does the AEA apply to companies?

No, the AEA only applies to individuals and trustees. Companies pay Corporation Tax on chargeable gains with no equivalent exemption.

Source: HMRC Capital Gains Tax Manual (CG18000): https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg18000

Related Terms

Capital Gains Tax (CGT)

CGT is the tax you pay on profits from selling assets that have increased in value - like property, shares, or your business.

Business Asset Disposal Relief

Business Asset Disposal Relief (formerly Entrepreneurs' Relief) reduces Capital Gains Tax to 10% when you sell your business or shares.

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