IT contractors and Capital Gains Tax (CGT)

If you dispose of any assets that have increased in value over time, you will most likely incur a capital gains tax liability.

How much CGT do you pay?

This depends on your income tax band.

For the 2025/26 tax year, the first £3,000 of gains are tax-free. This is known as the Annual Exempt Amount, which has been significantly reduced in recent years.
Within the basic rate band:
- 18% on most chargeable gains
- 18% on residential property (if it’s not your main home)
- 32% on carried interest (if applicable)
Within the higher rate band:
- 24% on most chargeable gains
- 24% on residential property (if it’s not your main home)
- 32% on carried interest

No tax is usually paid on assets transferred to your spouse or civil partner.
If you sell your main home, you shouldn’t have to pay CGT on the gains (although you do on any other properties you may own). This is known as Private Residence Relief.
You won’t have a CGT liability if you sell any personal effects up to the value of £6,000.

If you are disposing of qualifying business assets, you may be able to claim BADR (formerly known as Entrepreneurs’ Relief) on any gains you make and pay just 14% tax.
From April 2026 onwards, this rate climbs to 18%.
The lifetime limit of claims under BADR is £1m.

You pay any CGT you owe via the annual self-assessment process by including details of your disposals on your tax return.
To calculate your tax bill, you must first determine your income from normal employment during the tax year in question, referring to the current income tax bands (see here).
You then work out your CGT liability by subtracting any losses from your gains and subtracting the current CGT tax-free allowance (a miserly £3,000 for 2025/26).
If you haven’t reached the higher rate income tax threshold after using up your personal allowance and adding your total income for the year, you’ll pay 18% CGT on most chargeable gains made within the basic rate band.