Capital Gains Tax / Lesson 3 of 7
The rates, and how income decides them
The same gain, two people, and one pays a third more. Their salaries are the reason.
The short answer
- ✓ Gains are added on top of income, which decides the rate
- ✓ A single gain can be taxed partly at each rate
- ✓ Pension contributions extend the basic rate band for gains as well as income
- ✓ For a discretionary sale, choosing the tax year is often the biggest lever
Your income sets the rate
Capital gains are added on top of your income to work out which rate applies. The gain does not have its own bands: it uses whatever is left of yours.
| Where the gain falls | Rate |
|---|---|
| Within your remaining basic rate band | 18% |
| Above it | 24% |
A gain can straddle both rates
Income £40,000
Personal allowance £12,570
Taxable income £27,430
Basic rate band £37,700
Basic rate band remaining £10,270
Gain after the exempt amount £27,000
First £10,270 at 18% £1,849
Remaining £16,730 at 24% £4,015
---------
Total CGT £5,864The same £30,000 gain for someone with no other income would be taxed almost entirely at the lower rate. Income and gains are not separate systems.
The order things are taxed in
Income is taxed first, then gains sit on top. That means a pension contribution or Gift Aid donation, which extends your basic rate band, also creates more room for gains at the lower rate.
Basic rate band £37,700
Pension contribution £5,000
Extended basic rate band £42,700
That extra £5,000 of band can now hold £5,000
more gain at 18% rather than 24%, saving £300
of CGT on top of the income tax relief.The bit HMRC does not spell out
Because the gain sits on top of income, the timing of a disposal matters as much as its size. Realising a large gain in a year you also had a bonus pushes more of it into the higher rate. Realising it in a career break, a year of low earnings, or after retiring can move a substantial slice back down to the lower rate.
For a discretionary sale, such as shares rather than a house move, choosing the tax year is often worth more than any other planning available.
Common mistakes
- Assuming one flat rate. A gain routinely straddles both.
- Treating gains as separate from income. Income decides the rate.
- Selling in a high-income year without thinking. Timing is the biggest lever.
- Overlooking pension contributions. They extend the band for gains too.
Income before adding a gain
Where the tax actually comes from
National Insurance, student loan and pension contributions are left out here on purpose, so you can see income tax on its own. The calculator below includes them.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Your gain
Used to work out how much of your gain falls in the basic-rate band.
Capital Gains Tax
on a net gain · effective rate
- Net gain
- Tax-free allowance (AEA)
- −
- Taxable gain
- at
- at
- Gain after tax
What this means
Estimate only - not tax advice. Reliefs (Private Residence Relief, BADR, gifting to a spouse) can change this. rates.
What this means for you
Do this next, in order
Estimates only - not financial or tax advice. Confirm figures on GOV.UK or with an adviser.
CGT as your gain grows
Based on your current income and asset type. The marker shows your gain.
Compare saved scenarios
| Scenario | Net gain | CGT | Kept | |
|---|---|---|---|---|
Key takeaways
- ✓ Gains are added on top of income, which decides the rate
- ✓ A single gain can be taxed partly at each rate
- ✓ Pension contributions extend the basic rate band for gains as well as income
- ✓ For a discretionary sale, choosing the tax year is often the biggest lever
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. How is the CGT rate on your gain decided?
2. Can a pension contribution reduce your CGT?
3. You can choose when to sell some shares. What matters most?
Sources
Finished this lesson?
Mark it done and we will remember where you got to.
You are 3 lessons in. Want to keep your progress?
Right now your place is saved in this browser only. A free account keeps it across devices, unlocks the end-of-course exam and certificate, and gives you a personal action plan at the end. No card, no upsell.
