10 ways to cut your capital gains tax bill

UK taxpayers are paying billions of pounds in capital gains tax (CGT) every year – but there are ways to slash your bill.

You pay capital gains tax when your total profit from selling or giving away assets goes above your tax-free allowance, which is currently £3,000 per year.

The lower and higher rates of CGT were hiked in October 2024 from 10% to 18% and 20% to 24%, respectively.

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Simple steps like offsetting any losses, timing your gain carefully, and carrying out a ‘Bed and ISA’ transaction could save you thousands of pounds when it comes to filing your annual tax return.

1. Consider your tax position next year

A simple way to save on CGT could be just a matter of timing when you take the gain.

Not everyone’s income is consistent from year to year. You might be a freelance worker, for example, who receives more work one year and less the year after.

If you expect to earn less income next year and be in a lower tax band, deferring the sale of an asset could mean you pay a lower rate of CGT on the gain (because CGT is paid at higher and lower rates depending on your income tax band).

David Little, financial planning partner at wealth manager Evelyn Partners, said: “In some cases, deferring a disposal until a lower-income year can materially reduce the tax rate applied.”

Of course, you also need to weigh up other factors like market timing. If you are looking to sell some shares after a good run because the outlook has suddenly turned sour, delaying the sale for tax reasons might not make sense if it comes with the risk of capital losses.

2. Use your annual allowance

Each year, you can realise a certain amount in capital gains before any tax is due. This is known as your CGT allowance or your annual exempt amount. The annual allowance works on a ‘use it or lose it’ basis so if you don’t use it one year, it won’t roll over to the next.

The CGT allowance has been slashed in recent years from £12,300 to £6,000 in April 2023, and again to £3,000 in April 2024. For the 2026/27 tax year, the allowance is £3,000.

If you are building up a large gain, taking it in a slow, controlled way over a number of years could save you significant sums in capital gains tax. By taking your gain in increments of £3,000 in profits each year, you could avoid paying any tax at all.

You can reinvest the money once you have sold your investment, effectively re-setting your gains to zero, however you need to wait 30 days if you are planning to repurchase the exact same asset. The exception is if you are buying it back within an ISA or SIPP.

Little said: “The annual CGT exemption is sometimes referred to as ‘the forgotten allowance’ among tax experts. It quite often remains unutilised even among experienced investors who let their exemption expire each tax year end.”

3. Offset any losses

You may have losses on some investments and gains on others in any given year. You can use this to your advantage by offsetting the two.

For example, if you have £10,000 in gains and £3,000 in losses, you only need to pay tax on £7,000 of gains. If you haven’t yet used your annual exempt amount (£3,000), you can bring this into the equation too, taking your taxable gain down to £4,000.

4. Deduct any unused losses from previous tax years

Losing money on an asset is not usually a welcome thing. But with a bit of simple planning you can use losses to your advantage to save on CGT, including by carrying them forward for use in future tax years.

Losses can be carried forward and applied to your gains to offset them and lower your CGT bill indefinitely. But you need to report the loss to HMRC within four years of the disposal (sale of the asset). This is dated from the end of the tax year in which it arises.

Helen Morrissey, head of retirement analysis at wealth manager Hargreaves Lansdown, said: “[Losses] can be carried forward for use in future, but it is vital that HMRC has a record of them so they will need to be included on your self-assessment.”

5. Use a stocks and shares ISA

You can avoid CGT entirely by holding your investments in a stocks and shares ISA. You can pay up to £20,000 into ISAs each tax year in total. Any capital gains you make on assets held in an ISA are tax-free, no matter the size of the gain.

No income tax or dividend tax is due on investments held in an ISA either, so you can also use it to keep your dividends safe from the taxman.

From April 2027, under 65s face a new £12,000 a year cash ISA limit, which falls within the overall £20,000 ISA allowance. If they put £12,000 into a cash ISA in the next tax year, to use the remaining £8,000, they will need to invest it in a stocks and shares ISA.

6. Carry out a ‘Bed and ISA’ transaction

A ‘Bed and ISA’ transaction involves selling your existing assets and rebuying them within an ISA. If you do this gradually, only realising gains of £3,000 per year (equivalent to your annual CGT allowance), you won’t have to pay any CGT in the process.

Once your assets are held within the ISA, you can wave goodbye to income and capital gains tax for good as far as the investments in question are concerned.

Investment platforms often offer a ‘Bed and ISA’ service where they take care of the selling and buying for you, usually for one fee.

7. Pay into a pension

Putting money into your pension is one of the most tax-efficient ways to save for the future. Any income or gains earned within a pension wrapper are tax-free.

Furthermore, savers receive pension tax relief on any contributions, paid at their marginal rate. This is 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers.

The 20% is applied automatically, but higher and additional rate taxpayers may need to claim the rest via their tax return, if the pension they are paying into is a ‘relief at source’ scheme like a SIPP.

Pensions used to be a tax-efficient way of passing on wealth after death too, as private pension pots fell outside of the inheritance tax net. However, this is set to change from April 2027.

8. Don’t forget Sharesave schemes

Workplace share schemes offer employees a stake in the business and can be incredibly valuable, but they may come with a capital gains tax sting. Fortunately, there’s an ISA rule that helps you save CGT on shares from a Sharesave scheme or Share Incentive Plan (SIP).

Provided you transfer the shares into an ISA within 90 days of the scheme maturing, and they are valued at less than your annual £20,000 ISA allowance, you won’t need to pay any CGT.

Jonathan Watts-Lay, director of Wealth at Work, the workplace savings specialist, said: “[Sharesave] plans are used by many companies to motivate and reward their hard-working employees, as well as help them to build their financial resilience. It is a low-risk way to save for the future, with the possibility of a very good return on investment.

“However, it is important that after many years of saving, share plan participants don’t end up paying unnecessary tax.”

9. Plan as a couple

If you’re married or in a civil partnership, you can transfer the ownership of some assets to your spouse. There’s no CGT to pay on the transfer.

This can be useful if you want to realise some gains and your spouse hasn’t used up their CGT allowance for the year, but you have. It can also be useful if your spouse is a basic rate taxpayer and you are a higher or additional rate taxpayer, as tax will be charged at a lower rate.

Transferring assets to your spouse could also make sense if they haven’t used up their annual £20,000 ISA allowance, but you have. They could then migrate the asset into an ISA through a ‘Bed and ISA’ transfer.

Little, from Evelyn Partners, said: “The ability for spouses to transfer assets between them is very useful part of planning around CGT, as it means that you can double up on the £3,000 allowances and, where a gain will still result in tax being paid, transferring assets to a basic rate taxpayer could result in a reduction in tax.”

10. Consider tax-efficient investments

You could consider adding some tax-efficient investments to your portfolio. These include gilts and things like venture capital trusts (VCTs).

Gilts are UK government bonds, issued by HM Treasury to finance public spending. When you purchase gilts, you are essentially lending money to the government in return for regular interest payments (the coupon) and the repayment of the principal at maturity. Gilts are a relatively low-risk investment due to the UK government's strong credit standing. Interest paid by a gilt is taxed as income but any capital gains are free from tax. You also don't pay stamp duty when you buy a gilt.

VCTs can be risky, so should only be considered as part of a broadly-diversified portfolio. They are, however, tax efficient. Investors qualify for CGT relief, tax-free dividends and 20% income tax relief with an annual allowance of £200,000.

You could also shift your money into the Seed Enterprise Investment Scheme (SEIS) which invests in smaller start-ups and is an “even bigger winner” when it comes to tax savings, according to Susannah Streeter, chief investment strategist at investment broker Wealth Club.

You qualify for income tax relief of up to 50%, get an annual allowance of £200,000 and any capital gains realised on shares are tax-free if held for three years or more.

Like VCTs, the SEIS can be risky as you are investing in early-stage companies which are more likely to fail, hence why the tax benefits are so great.