If you are looking for ways to avoid or reduce Capital Gains Tax (CGT), this guide will explain the key strategies you need to know.
CGT is charged on the profit you make when selling or disposing of certain assets, but with the right planning you can often limit how much tax you owe.
From making use of your annual exemption and offsetting losses to investing through ISAs and pensions or transferring assets between spouses or civil partners, there are several legitimate ways to manage your CGT liability effectively.
At a glance
- Capital Gains Tax (CGT) is charged on the profit when you sell or dispose of assets that have increased in value.
- The annual CGT exemption is £3,000 for the 2025/26 tax year.
- ISAs and pensions are exempt from CGT, while inheritance has separate rules.
- Strategies to reduce CGT include using allowances, offsetting losses, splitting assets, and investing through tax-efficient wrappers.
- Seeking professional advice is crucial as tax rules can change and depend on your personal circumstances.
What is CGT and how is it calculated?
Capital Gains Tax (CGT) applies when you make a profit by selling or disposing of certain assets such as shares, property (other than your main home), or valuable personal possessions. It is not the total sale proceeds that are taxed, but the gain, which is the difference between what you paid for the asset and what you sold it for, after deducting allowable costs such as broker fees or improvements.
The tax rate depends on your income tax band and the type of asset. For the 2025/26 tax year:
- 10% or 20% on most assets, depending on whether you are a basic or higher/additional rate taxpayer.
- 18% or 24% on residential property (other than your main home).
Some assets are exempt:
- Stocks and Shares ISAs: All gains are free from CGT.
- Pensions: Gains within pensions (including SIPPs) are not subject to CGT.
- Inheritance: Inheritance is subject to Inheritance Tax, not CGT, though later disposals of inherited assets can also trigger CGT.
14 tips to reduce or avoid CGT
1. Use your annual exemption
Every individual has a CGT allowance (£3,000 in 2025/26): any gain within this threshold avoids tax. Remember that if unused, annual exemption cannot be carried forward.
2. Offset losses against gains
Losses from the same tax year reduce your taxable gain. Unused losses can be carried forward indefinitely if reported to HMRC within four years.
3. Transfer assets to your spouse or civil partner
Transfers between spouses or civil partners are free of CGT. This allows couples to double their combined exemption and potentially use both basic-rate tax bands.
4. Invest through ISAs
Investments inside an ISA are shielded from CGT. Each adult can invest up to £20,000 annually, and couples can shelter £40,000 in total.
5. Consider ‘bed and ISA’
This involves selling an asset, realising the gain, and immediately repurchasing it inside an ISA. All future gains will then be tax-free.
6. Contribute to pensions
Pension contributions can reduce your taxable income, potentially lowering the CGT rate applied to your gains. For example, contributions may extend your basic-rate band, keeping you within the 10% or 18% bracket.
7. Give to charity
Donating qualifying shares, land or property to a charity provides income tax relief and exemption from CGT.
8. Use Enterprise Investment Schemes (EIS)
Investments in EIS-qualifying companies can defer or exempt gains. However, these are high-risk and suitable only for experienced investors.
9. Claim Gift Hold-Over Relief
If you gift certain business assets, the gain can be deferred until the recipient disposes of the asset.
10. Make use of chattel exemptions
Some personal possessions (antiques, jewellery, cars) may be exempt if sold for less than £6,000 or classed as “wasting assets.”
11. Time your disposals carefully
Spreading sales over two tax years may allow you to use multiple allowances. The right timing can also reduce the risk of pushing yourself into a higher tax band.
12. Split assets with your spouse (‘income splitting’)
By transferring assets in advance, couples can not only use two CGT exemptions but also manage income levels to keep gains in lower tax bands.
13. Use trusts for estate planning
Placing assets into certain trusts may help defer or mitigate CGT, though rules are complex and professional advice is essential.
14. Seek professional advice
CGT planning is complex and the right approach depends on your portfolio, income, and family circumstances. A regulated adviser can help ensure you make the most of reliefs while staying compliant.
How to Reduce CGT by Maximising Spousal Transfer Allowances
One of the most effective ways for couples to reduce their Capital Gains Tax liability is through asset transfers between spouses or civil partners. HMRC rules allow such transfers to take place without triggering CGT, provided the transfer is made as a genuine and unconditional gift.
This strategy gives couples two key advantages:
- Double allowances: Each person has a £3,000 annual CGT exemption in 2025/26, meaning a couple can shelter up to £6,000 of gains each year.
- Tax band planning: By holding assets in the name of the partner with lower taxable income, gains may fall within the basic-rate band, taxed at 10% (18% for residential property) instead of higher rates of 20% or 24%.
Example: Suppose one partner is a higher-rate taxpayer and has already used their annual exemption. By transferring part of a shareholding to the other partner, who is a basic-rate taxpayer with an unused allowance, the couple could save both the exemption amount and the difference between higher and basic-rate CGT.
Key conditions to be aware of:
- The exemption only applies if you are legally married or in a civil partnership and living together. Unmarried partners, even in long-term relationships, do not benefit from this rule.
- Once transferred, the receiving spouse or partner becomes the legal owner of the asset. This means you cannot retain control or expect it back in the event of separation or divorce.
- The transfer must be unconditional. HMRC does not permit arrangements that seek to disguise a retained interest in the asset.
Best Ways to reduce CGT in 2025
| Strategy | How it helps | Key considerations |
| Annual exemption | First £3,000 of gains are tax-free (2025/26) | Cannot be carried forward |
| Offset losses | Reduce taxable gain by using past or current losses | Losses must be reported to HMRC |
| Spouse/civil partner transfers | Double allowances and split gains across tax bands | Must be a genuine gift |
| ISAs (‘bed and ISA’) | Shelter up to £20,000 per year (£40,000 per couple) | Dealing costs and market timing risk |
| Pension contributions | Lower taxable income and effective CGT rate | Funds locked until retirement age |
| Charitable giving | No CGT on qualifying donations | Only applies to eligible assets |
| EIS/SEIS investments | Gains exempt or deferred | High risk and illiquid |
| Chattel exemptions | Some personal assets exempt (e.g. cars, antiques under £6,000) | Complex rules apply |
| Timing disposals | Spread across tax years to use multiple allowances | Dependent on market conditions |
| Professional advice | Tailored strategies | Fees apply but may save tax |
Key Points to Remember
- CGT applies on profits when disposing of assets such as shares, property, and valuables.
- ISAs and pensions are outside CGT, but inheritance tax rules differ.
- Use your annual exemption and offset losses where possible.
- Couples can transfer assets to maximise allowances and minimise tax rates.
- Timing disposals, donating to charity, or investing in EIS can provide further relief.
- CGT planning is complex — professional advice can ensure strategies suit your circumstances.
FAQs
Each individual has an annual CGT exemption of £3,000. This means you can make gains up to this amount in the tax year before tax applies. The allowance cannot be carried forward into future years.
No. Investments held within a Stocks and Shares ISA or a pension, including SIPPs, are exempt from Capital Gains Tax.
Yes. Transfers between spouses or civil partners are free of CGT. This allows couples to use two annual exemptions and, in some cases, keep gains within the lower tax band.
You must report and pay CGT through your Self Assessment tax return, unless it relates to the disposal of UK residential property, which must be reported and paid within 60 days of completion.
Inheritance itself is not subject to CGT, but Inheritance Tax may apply. If you later sell inherited assets and they have risen in value since you acquired them, CGT could be due on the gain.
Your main home (if it qualifies for Private Residence Relief), ISAs, pensions, and certain personal possessions such as cars are exempt.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
