Capital Gains Tax on Investments: The £3,000 Question

For years, capital gains tax was something ordinary investors could ignore: a £12,300 annual allowance covered almost everyone. That world is gone — the allowance is now £3,000, and unremarkable portfolios held outside ISAs generate taxable gains routinely. Here is how the tax works and the entirely legal ways to keep it small.

The mechanics

CGT applies when you sell (or give away, except to a spouse) investments held outside wrappers, on the gain — proceeds minus what you paid. Gains within the £3,000 annual exempt amount are tax-free; above it, gains are taxed at 18% where they fit within your basic-rate band and 24% beyond it. Losses offset gains in the same year, and unused losses carry forward indefinitely if you report them. Nothing is taxed while you simply hold: no sale, no CGT — though dividends are taxed separately along the way (see dividends).

Everything inside wrappers is exempt

ISAs and pensions sit entirely outside CGT — no gains tax, no reporting, ever. This single fact organises UK investing: fill your £20,000 ISA allowance before holding anything taxable, and if you already hold unwrapped investments, migrate them via bed-and-ISA: sell within your CGT allowance, rebuy the same fund inside the ISA. The sale crystallises gains (use the £3,000 allowance to do it tax-free in slices, April by April) and everything after is sheltered forever. Platforms automate the pair of trades. A spouse doubles the machinery: transfers between spouses are tax-free, so gifting holdings lets you use two £3,000 allowances and potentially a partner's lower rate band.

Rules that catch people

• The 30-day (bed-and-breakfast) rule: sell and rebuy the same fund within 30 days outside a wrapper and the sale doesn't count for harvesting purposes. Rebuying inside an ISA, or buying a similar-but-different fund, sidesteps it legitimately.
• Accumulation units: reinvested dividends you already paid income tax on increase your cost basis — track them, or you will overpay CGT at sale. This is the quiet argument for income units in taxable accounts.
• Reporting: you must report when tax is due, or when total disposals exceed four times the allowance even at a loss — via self-assessment or HMRC's real-time service.
• Funds' internal trading creates no CGT for you — only your own sales do. Fund switches, though, are disposals.

Strategy in one paragraph

Use the allowance every year (it doesn't roll over) to bed-and-ISA your unwrapped holdings; harvest losses in bad years and report them; give assets to your spouse before selling where their band is lower; hold what must stay taxable in income units with records; and remember the endgame — assets get a CGT-free uplift at death, which occasionally makes "never sell" rational for elderly holders (see the estate side in our wider tax guide). None of this is aggressive planning; it is the system working as designed for people who do the admin.

This is general education, not personalised financial advice. Investing involves risk, including the risk of losing money, and past performance is not a guide to future returns. Nothing here recommends any specific investment — for anything genuinely complex or high-stakes, speak to a regulated financial adviser.