How To Calculate Capital Gains Tax On Shares
- MAZ
- 2 days ago
- 18 min read
How to Calculate Capital Gains Tax on Shares in the UK: Understanding 2025/26 Tax Bands, Allowances, and Basic Calculation Steps
Picture this: You're staring at the details of your share sales from the last tax year, wondering exactly how much Capital Gains Tax (CGT) you owe—if any... and how to work it out without the usual headache. None of us loves a tax surprise, especially when it's about gains on shares, but here's the deal: understanding CGT in the UK for the 2025/26 tax year isn’t as complicated as it looks once you get the hang of the key numbers and the step-by-step process.
In my 18 years as a tax accountant advising UK taxpayers and business owners, I can tell you the biggest pitfalls are misunderstanding allowances, mixing income and gains, and missing out on reliefs or ways to reduce your CGT bill. To tackle that, let’s break down the key components, tax bands, allowances, and calculation basics — all based on the very latest 2025/26 figures from HMRC.
What is Capital Gains Tax on Shares?
CGT is the tax you pay when you sell (or “dispose of”) shares that have increased in value. It’s not about your income, but the profit—the gain—you make on selling those shares. For shares listed on UK exchanges or held through ISAs and pensions, different rules apply (usually tax-free), but if you sell shares outside of those wrappers, this article is your guide.
Key Figures for 2025/26 Tax Year
Here are the essentials you need to know right off the bat:
Note: CGT rates are 10% and 20% for shares, not the 18% and 28% rates that apply to residential property. Also, my sources show that HMRC keeps the £3,000 CGT annual exempt amount frozen for 2025/26.
How CGT Is Calculated on Shares: The Simple Formula
At its core, CGT calculation is:
Taxable Gain=Proceeds−(Acquisition Cost + Allowable Expenses + Losses Carried Forward)−Annual Exempt Amount
Taxable Gain=Proceeds−(Acquisition Cost + Allowable Expenses + Losses Carried Forward)−Annual Exempt Amount
Then, CGT due = Taxable Gain × Applicable CGT rate (10% or 20% depending on your income band).
Here's the kicker: Your income tax band determines if you pay 10% or 20% CGT on your shares. The gains are added on top of your income to see which band you fall into.
Step-by-Step Breakdown for Calculating CGT on Shares
Calculate your total disposal proceeds from selling shares (the amount you sold them for).
Deduct the original purchase cost (also called “base cost” or “cost basis”). Include the price you paid plus any broker fees.
Subtract allowable costs, such as broker fees on the sale or other direct costs related to buying or selling.
Deduct any capital losses carried forward from previous years (if applicable).
Apply the annual exempt amount (£3,000 for 2025/26) to reduce your taxable gain.
Add your taxable gain to your other income to find the total taxable income.
Determine the CGT rate based on whether the combined income + gain falls within the basic (10%) or higher rate (20%) band.
Calculate the CGT payable by multiplying the taxable gain by the correct rate.
Income Bands & CGT Rates Explained
Let’s dig deeper into how your other income impacts your CGT rate. Imagine you earn £40,000 a year salary (within basic rate band). Your personal allowance has been used on this salary, so your basic rate limit remains for CGT.
● Basic rate band limit: £50,270 - £40,000 = £10,270 available in the basic rate band.
● CGT on shares falling within this £10,270 is at 10%.
● Any gains above £10,270 spill into higher rate and are taxed at 20%.
Here's an original example for clarity:
So the total CGT bill would be £2,027 on a £15,270 gain if you have an income of £40,000.
CGT Annual Exempt Amount in Practice
Remember, the first £3,000 of gains in the 2025/26 tax year are tax-free given the Annual Exempt Amount (AEA). If you have gains below this, no CGT is due regardless of income.
In my years advising clients across London and Manchester, many are surprised by how often small gains can slip under the radar or how the exempt amount can be maximised by planning disposals carefully across tax years.
Common Pitfalls When Calculating CGT
Be careful here, because I’ve seen clients trip up when:
● Forgetting to deduct broker fees and allowable expenses.
● Treating shares purchased through different acquisitions as one pool without separating costs correctly.
● Ignoring carried-forward losses which can substantially reduce CGT.
● Misjudging how taxable income merges with gains to affect the rate.
Special Notes for UK Business Owners and Those with Multiple Income Sources
Your income mix (salary from your business, dividends, rental income) all counts towards calculating which CGT rate applies. For business owners, remember that dividends have their own tax rates, so boost your income with dividend planning to potentially keep CGT at 10% if possible.
Table: Summary of CGT Rates for Shares in 2025/26
Why This Matters More Than Ever in 2025/26
The personal allowance and the CGT allowance remain frozen, and inflation means real gains are catching more taxpayers. Small overpayments can add up, so knowing this inside out means you can:
● Avoid overpaying CGT by double-checking calculations.
● Spot when you’re in the higher rate band and plan disposals accordingly.
● Use your annual exemption strategically.
● Ensure all allowable costs and losses are properly claimed.
Your Next Steps: Getting Practical
For those new to CGT calculations, the HMRC offers a useful
Capital Gains Tax calculator and a Personal Tax Account where you can track income and tax liabilities in one place.
I also recommend keeping comprehensive records of all share purchases and sales because the accuracy of your acquisition costs and allowable expenses can save you money and headaches.
In Summary
You now have the basic structure to start your CGT calculation for shares:
● Know the 2025/26 personal allowance and thresholds.
● Understand the calculation formula with acquisition costs and exemptions.
● Recognise how your income level changes your CGT rate.
● Use HMRC’s allowance effectively.
Mastering Capital Gains Tax Calculations on Shares: Advanced Income Integration, Loss Offsetting, and Self-Employed Considerations for UK Taxpayers 2025/26
So, the big question on your mind might be: “I’ve got multiple streams of income, I’m self-employed, or running a business—how do I nail my Capital Gains Tax calculation on shares without getting overwhelmed or overpaying?” You’re not alone. With the UK tax system layered and sometimes tricky, many taxpayers and business owners get tangled in how their various incomes and business specifics affect CGT on share disposals.
Having guided clients—ranging from freelancers hit by IR35 changes to small company directors juggling dividends and salary—this section dives into practical, real-world applications of CGT principles for those with complex financial lives. Plus, you’ll find original worksheets and stepwise approaches to confidently verify or calculate your CGT liability in these scenarios.
How Multiple Income Sources Affect Your CGT Rate
Remember from Part 1 how your total taxable income, plus capital gains, determines which CGT rate you pay (either 10% or 20% for shares)? For people juggling salaries, rental income, dividends, and self-employed profits, this is crucial.
Take Sarah from Manchester, who has a £35,000 salary, £8,000 rental income, and sold shares for a £12,000 gain. Her taxable income is her £35,000 + £8,000 = £43,000. Here’s how to work out her CGT:
Combine income streams: £35,000 + £8,000 = £43,000
Determine how much of the basic rate band is left: £50,270 - £43,000 = £7,270
Apply 10% CGT on the first £7,270 of her £12,000 gain = £727
Tax 20% CGT on remaining £4,730 = £946
Total CGT = £727 + £946 = £1,673 (after subtracting annual exemption)
This shows the importance of tallying all income sources to correctly identify CGT rates.
Carrying Forward Capital Losses: Your Secret Weapon
One key area where many miss out is carrying forward losses. Say you made a loss of £5,000 on shares in the 2023/24 tax year and did not use this in prior gains. This amount can be used to offset against current or future gains, reducing the taxable amount.
Example: If Sarah had a £2,000 unused loss carried forward, her gain for CGT would drop to £10,000 (£12,000 - £2,000), and her CGT bill lower accordingly. Losses must be reported to HMRC within four years to preserve the right to claim.
Self-Employed & Business Owners: Special Considerations
Now, let’s think about your situation—if you’re self-employed or running a business, the CGT rules for shares remain the same, but how you integrate income and claim expenses can be a game changer.
● Your business profits count as income for CGT rate calculations.
● Dividend income must be added on top of salary and profits, affecting your income band.
● Business owners often pay themselves via dividends and salary; proper planning here can keep CGT rates lower.
● Don’t forget to deduct any allowable business expenses to reduce your taxable profits and therefore total income before adding capital gains.
Imagine Mark, a freelance graphic designer in Bristol with £30,000 business profits, £10,000 dividends, and £6,000 gains on shares. His income composition moves him well into the higher rate band before gains, so he will pay the 20% CGT on shares..
Emergency Tax, Tax Code Errors, and How They Impact CGT Calculations
Be careful here; I’ve seen clients hit by emergency PAYE tax codes or incorrect tax codes throughout the year. While CGT is self-assessed separately, errors in income tax can obscure your true income, making CGT rate estimation tricky unless you verify your income correctly.
In these cases:
● Use your online Personal Tax Account with HMRC for accurate up-to-date income totals.
● Check your P60 or P45 forms for full-year pay and tax details.
● Make adjustments in your Self Assessment or CGT calculations as needed.
Worksheet: Calculate Your CGT Liability
Here’s an original CGT worksheet you can fill in with your details:
This sheet helps structurally break down the key steps with your personal figures.
Practical Tips for Business Owners
● Keep strict records of share purchase prices and dates.
● Track business income and expenses meticulously, particularly if you supplement salary with dividends.
● Consider timing share disposals across tax years to maximise use of annual exemptions.
● Beware of complex situations like disposals affected by Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) reliefs, which need separate calculations.
Dealing with Scottish & Welsh Tax Variations
While CGT rates and allowances are uniform across the UK, income tax bands differ in Scotland and Wales, which can influence your CGT rate band by affecting your overall taxable income calculation.
● Scottish taxpayers have different income tax bands, potentially shrinking the basic rate band and pushing more gains into the 20% CGT rate.
● Welsh taxpayers follow the same bands/rates as England.
● Always use your accurate regional tax bands when adding income and gains.
Case Study: Freelancers and the IR35 Effect
In recent years, IR35 rules impacted many freelancers’ income classification, often increasing their taxable employment income, pushing them into higher tax brackets, and affecting their CGT rates on shares.
For example, Helen, a London-based freelancer, found her income reclassified under IR35, meaning higher PAYE tax but also a reduced basic rate band for CGT calculations, leading to a higher CGT liability on her share disposals.
Handling multiple incomes, business profits, and carried-forward losses while calculating CGT might feel like a juggling act. But with proper organisation and using this detailed approach, you can accurately calculate your tax due and avoid unexpected bills or missed overpayments.
Calculating Capital Gains Tax on Shares in the UK: Expert Guide for 2025/26
Now that you've mastered the basics and tackled the tricky parts like multiple incomes and business relevance, it’s time to arm yourself with advanced tips on reliefs, refunds, avoiding overpayments, and checking your CGT liability in a way that truly benefits you.
Key Capital Gains Tax Reliefs for Shares in 2025/26
There are several reliefs and allowances designed to ease your CGT burden if you qualify, and understanding these can make a significant difference to your tax bill. In my 18 years advising UK taxpayers, these CGT reliefs often unlock savings that many miss.
Annual Exempt Amount (AEA)
The headline relief you've already met is the Annual Exempt Amount—£3,000 for the 2025/26 tax year. This means you can earn up to £3,000 in gains each year without paying CGT. It’s been reducing in recent years, so make sure you use it fully. Gains below this aren’t taxable and don’t need reporting.
Business Asset Disposal Relief (BADR)
If you’ve sold shares in your own business or a business where you are a significant shareholder, you may be eligible for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief). This reduces the CGT rate on qualifying gains to 14% for disposals from April 2025 (it was 10% before Oct 2024), rising to 18% in April 2026. This relief applies to gains from the sale of shares in a personal company where you hold at least 5% of shares and voting rights, and you meet other criteria such as being an employee or officer.
This can be a game-changer for business owners with meaningful stakes, so it pays to check eligibility carefully. In my practice, advising clients ahead of disposals to plan and meet relief requirements can save tens of thousands of pounds.
Other Notable Reliefs
● Investors’ Relief: Reduced lifetime limit and changing rates mean this relief is less common post-2025 but still worth checking if you invested in unlisted companies.
● Rollover Relief and Holdover Relief may apply to some share disposals linked with business assets or gifts but are less common for regular share investors.
Avoiding Common Traps and Claiming Tax Refunds
Overpayment and Underpayment Risks
In my years advising clients, one of the most frequent issues is overpaying CGT due to incorrect assumptions about income bands or missing losses. Conversely, not reporting gains above the exemption can lead to penalties.
To avoid this:
● Double-check your total taxable income via your Personal Tax Account on
● .
● Cross-reference gains and losses carefully.
● Watch out for gains crammed into a single tax year without spreading disposals to use the annual exemption in multiple years.
Proactively checking using available worksheets and detailed personal records can uncover overlooked refunds or underpayments early.
Emergency Tax and High-Income Child Benefit Charge
Though emergency tax mostly affects PAYE income, it can misrepresent total income used in CGT band calculations, causing surprises. The High-Income Child Benefit Charge can also affect your total adjusted income, nudging you into the higher CGT rate bracket without you realising.
Keep an eye on your tax code and seek adjustments if needed, which will improve not only your income tax but your CGT calculations.
How to Use Your HMRC Personal Tax Account for CGT
Your online personal tax account is your best friend for checking cumulative income and CGT records. You can:
● View your taxable income from all sources.
● Check your capital gains reported via Self Assessment.
● Submit or amend CGT returns if you notice errors.
● Track your use of the annual exempt amount.
Using it at least once annually will help you spot inaccuracies and avoid surprises.
Preparing for Year-Round CGT Management: A Proactive Checklist
Here is a checklist I provide to clients for annual CGT readiness:
● Keep detailed records of all share purchases, sales, dates, purchase prices, and associated costs.
● Track all income streams: salary, business profits, dividends, rental income.
● Monitor income tax codes to avoid errors.
● Review loss positions and carry forward losses correctly.
● Plan share disposals to use your £3,000 CGT exemption each year strategically.
● Consult with a tax professional before large disposals or if there’s any complexity.
● Regularly check the Personal Tax Account for updates and inconsistencies.
● Consider tax-efficient wrappers like ISAs or SIPPs for future investments.
● Account for regional tax band differences if in Scotland or Wales.
● Keep abreast of tax law changes and planned relief rate adjustments (such as BADR changes effective April 2026).
Summary of Key Points
Capital Gains Tax on shares in 2025/26 charges 10% or 20% depending on your taxable income band.
The CGT Annual Exempt Amount is £3,000, allowing gains under this to be tax-free.
Calculate gains by deducting acquisition costs, allowable expenses, and any losses carried forward from total proceeds.
Combine your taxable income and gains to determine whether the gain falls within the basic or higher rate band.
Multiple income sources—salary, dividends, rental, business profit—affect your CGT rate band and must be aggregated.
Carried-forward capital losses reduce your taxable gains but must be claimed and reported to HMRC.
Self-employed and business owners should integrate profits and dividends carefully for accurate CGT calculation.
Business Asset Disposal Relief offers a reduced CGT rate (14% from April 2025) on qualifying business share disposals.
Use HMRC Personal Tax Account and Self Assessment to check, report, and amend CGT records to avoid errors or overpaying.
Keep detailed records, plan disposals strategically, watch tax code accuracy, and consult professionals for relief eligibility and tax optimisation.
FAQs
Q1: Can someone change their tax code if it’s incorrect and how does this affect Capital Gains Tax on shares?
A1: Well, it’s worth noting that a tax code primarily affects Pay As You Earn (PAYE) income tax, not Capital Gains Tax (CGT) directly. However, an incorrect tax code can misstate your taxable income, which impacts the CGT rate band applied to your gains (whether 10% or 20%). If you spot errors, contact HMRC promptly to correct your tax code to reflect accurate income—this helps you assess CGT liability correctly and avoid overpaying or underpaying CGT on shares.
Q2: How do multiple jobs or side hustles affect CGT calculation on shares?
A2: The key is total income aggregation—income from all employment, gigs, or side businesses combines with your gains to determine which CGT rate band you fall into. For instance, a part-time job might push you into a higher CGT rate if total income plus gains breach the basic rate threshold. So, even smaller side incomes can influence CGT rates significantly, making thorough income reporting vital.
Q3: What happens if tax is underpaid on CGT due to multiple income sources?
A3: In my experience, underpayment often occurs if income streams aren’t fully reported or losses overlooked, especially in self-assessment. HMRC can charge interest and penalties on such underpayments. It’s best to reconcile all incomes and gains yearly using the Self Assessment or Personal Tax Account to avoid surprises and penalties.
Q4: Are there regional differences in tax bands that affect Capital Gains Tax on shares?
A4: Yes, particularly for Scottish taxpayers who have different income tax bands. Since CGT rates depend on your total taxable income, the narrower Scottish bands for the basic rate can push more gains into the higher 20% CGT band sooner. Welsh and English taxpayers share the same tax bandings. It’s important to use the correct regional bands to calculate CGT correctly.
Q5: Can a self-employed person claim business expenses to reduce capital gains tax?
A5: Business expenses reduce your trading profits, which count as income for CGT rate calculations, but they don’t directly reduce capital gains. So, claiming expenses lowers taxable income and may keep you in the lower CGT band, indirectly saving CGT. Keep detailed records of allowable expenses for your business profits to optimise your tax position.
Q6: How do capital losses carry forward work for taxpayers with fluctuating incomes?
A6: Losses can be carried forward indefinitely but must be reported to HMRC promptly after the loss year. For those with earnings that swing between bands, utilising losses strategically in high-income years can reduce CGT significantly. For example, if you made a £5,000 loss three years ago, you can offset this against gains this year when your income is higher, lowering your tax bill.
Q7: How should business owners handle CGT when selling shares in their own company?
A7: Business owners should check if they qualify for Business Asset Disposal Relief, which offers a reduced CGT rate of 14% on qualifying business shares. Remember, you need to hold at least 5% of shares and voting rights and meet certain employment conditions. In practice, planning the timing of disposals to meet these criteria can save thousands in CGT.
Q8: How can someone in the gig economy manage their CGT liability on shares?
A8: For gig economy workers with irregular income, it’s essential to track total income carefully as it affects CGT rates. Their fluctuating earnings can cause unpredictable CGT liabilities, so consider smoothing disposals over tax years to maximise annual exemptions and stay within lower CGT bands where possible.
Q9: Are dividends included when calculating CGT rates on share disposals?
A9: Dividends are counted as income when determining your CGT rate band but are taxed separately from capital gains. High dividend income can push you into the higher CGT rate band, thus raising the rate on share gains. Careful tax planning around dividends and disposals can help manage overall tax liability effectively.
Q10: What are the time limits for reporting and claiming CGT losses?
A10: You must report capital losses to HMRC within four years after the end of the tax year in which they arise to carry them forward for offsetting. Missing this deadline usually means you lose the right to claim the loss, so prompt reporting is crucial, especially for frequent share traders.
Q11: If someone inherits shares, how does CGT apply when they sell?
A11: The base acquisition cost for CGT is generally the market value of the shares on the date of inheritance, not what the deceased paid. This can reduce gains if the shares increased significantly over the deceased's holding period. Good record-keeping of the market value at inheritance ensures proper CGT calculation.
Q12: How do CGT rules interact with share sales within a tax year with multiple disposals?
A12: The annual exemption applies to total taxable gains across all share disposals in a tax year. You can balance gains and losses from different disposals. For example, a gain on one share can be offset by a loss on another. Spreading disposals over tax years can maximise usage of annual exempt amounts and limit CGT bills.
Q13: Can emergency tax deductions on income impact CGT calculations?
A13: Emergency tax affects PAYE income, sometimes inflating apparent income figures temporarily. This can misguide your CGT rate band estimation if you rely only on pay slips. Always verify total income via HMRC’s Personal Tax Account or Self Assessment data for accurate CGT calculations to avoid overpayment.
Q14: How do share matching rules affect CGT calculation?
A14: The ‘same-day’ and ‘30-day’ share matching rules can affect the base cost when shares are sold and repurchased quickly, preventing artificial realisation of gains. Knowing these rules helps in correct calculation of gains and prevents unwanted tax liabilities by identifying which shares are matched to disposals.
Q15: What should business owners know about CGT when gifting shares to family members?
A15: Gifting shares is treated as a disposal at market value for CGT purposes, even if no money changes hands. Business owners should be aware this can trigger a CGT liability, and certain reliefs might apply if shares qualify as business assets. Planning gifts with professional advice helps manage tax efficiently.
Q16: Does owning shares through an ISA or SIPP affect CGT liability?
A16: Shares held inside an ISA or Self-Invested Personal Pension (SIPP) are exempt from CGT. Selling shares within these wrappers does not incur CGT regardless of gains. Using these tax-efficient vehicles is an excellent long-term strategy to avoid CGT traps altogether.
Q17: How does having multiple pensions or retirement plans affect CGT on shares?
A17: Pensions themselves don’t attract CGT, but if you hold shares personally outside pensions or ISAs, disposals are subject to CGT. Multiple pensions don’t change CGT calculation but considering moving investments into pension wrappers before disposal can be tax-efficient.
Q18: How can one check if they’ve paid too much CGT on shares?
A18: The best route is reviewing your disposals, allowable costs, income totals, and reliefs claimed. If you spot overpayment, you can amend your Self Assessment within certain time limits. Using your HMRC Personal Tax Account to check income data and comparing with your records is a good starting point.
Q19: What specific recordkeeping is advisable for CGT on shares?
A19: Keep detailed breakdowns of purchase and sale dates, prices, transaction costs, dividends reinvested, and any corporate actions affecting shares. Including these helps to accurately calculate gains and claim allowable expenses, reducing CGT. Good records simplify HMRC queries and self-assessment accuracy.
Q20: How does inflation affect practical CGT liabilities on share sales?
A20: While CGT calculations don’t officially adjust for inflation, in real terms, inflation can reduce the real gain you make. Being mindful of nominal gains inflated by market trends rather than real purchasing power can inform timing disposals and tax planning strategies in consultation with a tax adviser.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
Disclaimer:
The information provided in our articles is for general informational purposes only and is not intended as professional advice. While we strive to keep the information up-to-date and correct, MTA makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained in the articles for any purpose. Any reliance you place on such information is therefore strictly at your own risk. The graphs may also not be 100% reliable.
We encourage all readers to consult with a qualified professional before making any decisions based on the information provided. The tax and accounting rules in the UK are subject to change and can vary depending on individual circumstances. Therefore, MTA cannot be held liable for any errors, omissions, or inaccuracies published. The firm is not responsible for any losses, injuries, or damages arising from the display or use of this information.
