In this article, our experts will discuss 9 proven methods that can help reduce Capital Gains Tax liability significantly.
The changes to pension rules have made it extremely difficult to save much as part of the retirement plan. Therefore, it has become extremely crucial to make the most out of those assets that you have already managed to acquire.
Though the current rates at which Capital Gains Tax is charged are relatively low, still, there are several legal ways through which you can decrease CGT or even completely get rid of it.
How to Reduce Capital Gains Tax UK?
1: Avail CGT allowance
CGT allowance allows every individual to make tax-free gains of up to £3,000 (2026/2027 tax year) on investments. If for any reason you don’t use your CGT allowance for the tax year it applies to, then you can’t carry it forward in the next tax year.
So, the practice is to use your tax-free CGT allowance each tax year to reduce a hefty CGT bill in the coming years. for example, by selling assets strategically to realise gains within the limit.
Reporting: Gains above £3,000 must be reported to HMRC (via Self Assessment or real-time for property sales).
2: Adjust Losses
If your overall gain in any tax year surpasses your annual CGT allowance, then it will be wise to dispose of some assets at a loss.
The losses and gains incurred in any tax year are offset against each other, thus reducing the taxable amount of gains thus translating into reduced tax liability.
It is pertinent here to note that you have to notify HM Revenue & Customs about the losses within 4 years at the end of the tax year in which you have sustained the losses.
Additional Notes for Accuracy:
Losses vs. Allowance: Clarify that losses are deducted before applying the £3,000 allowance (a common point of confusion).
Future Use: Emphasise that unused losses do not expire, unlike the annual allowance.
Reporting Methods: Specify options (Self Assessment or letter) for flexibility.
3: Transfering assets to your Civil Partner or Spouse
Existing laws allow you to transfer your assets to your spouse or civil partner without paying CGT . This means that assets can be transferred between wife & husband or civil partners so that both annual CGT allowances are used.
Conditions:
- The transfer must be a genuine, unconditional gift (no prearranged resale).
- The recipient assumes the original cost basis of the asset.
- Transfers after divorce/separation (beyond the tax year it occurs) may be taxable.
Notes:
Documentation: Keep records of transfers in case HMRC inquires.
Non-UK Residents: Rules differ if either partner is non-UK resident.
Other Taxes: Watch for Inheritance Tax (IHT) implications if gifts exceed £3,000 annually.
4: Bed and Spouse
Couples can use a ‘Bed and Spouse’ strategy to realize gains tax-free while keeping the asset.One partner sells shares to use their £3,000 CGT allowance, then the other partner buys back the same shares at market price.
Rules:
- The repurchase must be at market value with no prearranged agreement.
- The 30-day ‘Bed and Breakfasting’ rule does not apply for spousal transfers.
- The buying partner’s future CGT liability will be based on the new purchase price.
Additional Notes:
Risk of Challenge: HMRC may scrutinise repeated transactions. Ensure documentation proves independent decisions.
Other Assets: Applies to any chargeable assets (not just shares).
Divorce Impact: Strategy only works for legally married couples/civil partners.
5: Investing in an ISA/Bed and ISA
Losses and gains held within an ISA are exempt from Capital Gains Tax, so it is advisable to avail ISA allowance in each tax year.
Since April 2020, an adult aged more than 18 years is allowed to make an investment in Shares ISA and Stocks up to £20,000. Likewise, since July 2014, a single new NISA permits you to invest an amount of up to £20,000 in shares and stocks or cash.
For married couples and civil partners, this translates into up to £40,000 annual in tax-privileged investment.
Same as the ‘Bed and Spouse’ option, a ‘Bed and ISA’ means to sell your assets for realising a capital gain (using your £3,000 CGT allowance) and then purchasing them back instantly inside your ISA within your £20,000 limit. Doing so allows you to enjoy future gains on these assets CGT-free.
Important:
- Avoid repurchasing identical shares outside the ISA within 30 days (HMRC’s ‘Bed and Breakfasting’ rule).
- Only new money counts toward your ISA allowance (transfers from existing holdings don’t qualify).
Additional Notes:
Junior ISAs: Parents can invest £9,000 per child (2025/2026).
Lifetime ISA (LISA): Separate £4,000 annual limit counts toward £20,000 total.
Reporting: No need to report ISA gains/losses to HMRC.
6: Contributing to a pension and Capital Gains Tax Liability
Pension contributions can lower your Capital Gain Tax rate by increasing your basic rate income tax band. A £10,000 gross pension contribution extends the band from £37,700 to £47,700 (2025/2026). If this keeps your total income + gains within the basic-rate band, your CGT rate on property falls from 24% to 18% (or from 20% to 10% for other assets).
- Only applies to earned income (not dividends/rents).
- Requires tax relief (automatically applied or claimed via Self Assessment).
Additional Notes:
Annual Allowance: Max gross contribution is £60,000 (2025/2026) or 100% of earnings, whichever is lower.
Carry Forward: Unused allowances from past 3 years may be used.
No Direct CGT Relief: Pension contributions don’t reduce taxable gains directly—only via income tax band shifts.
7: CGT and Charity
If you donate any of your assets — be it property, land, or shares — to a charitable organisation, or gives them to charity at price lower than the market value, then there are several CGT and income tax reliefs available.
- Gifting shares/land: No CGT is charged on the transfer, regardless of gains.
- Selling below market value: Claim Income Tax relief on the gift portion (e.g., selling £10,000 shares for £6,000 → £4,000 relief).
- The charity must be UK-registered.
- Applies to listed shares, property or land (not all assets qualify).
Additional Notes:
Inheritance Tax (IHT): Charitable gifts may also reduce your estate’s IHT liability.
Record-Keeping: Retain proof of the donation and valuation.
Foreign Assets: Rules differ for non-UK assets.
8: Investing in an EIS and Capital Gains Tax Liability
If you make gains via investment in Enterprise Investment Scheme (EIS), then they will be CGT-free provided that you have held your investment for 3 or more years.
If you incur a loss while disposing of your shares, you can elect for the amount of the loss to be set against any income for the year in which you have disposed of your shares, instead of setting it against the capital gains.
Likewise, to Trustees of certain Trusts and individuals, a CGT deferral relief is available. It means you can defer gains on capital tax if you have invested the gain in an EIS qualifying company. The gain may arise from the disposal of any kind of your asset, but you have to make the investment within 3 years after or 1 year before the gain has arisen. Fortunately, HMRC have not set a minimum period-limit for which you must hold a share; you can bring back the deferred gain into charge whenever you dispose of shares, or share are deemed to be disposed of under EIS.
The disadvantage of EIS is that such schemes are at a higher risk when compared with shares and traditional stocks.
Additional Notes:
Income Tax Relief: EIS also offers 30% income tax relief (max £600K/year).
Sunset Clause: EIS is currently approved until April 2035, but rules may change.
SEIS: For smaller investments, consider SEIS (50% income tax relief, CGT free after three years).
9: Holdover Relief and Capital Gains Tax Liability
When you holdover relief on certain assets, the chargeable gain gets postponed. You may claim holdover relief for:
- Unlisted trading company shares.
- Business assets (e.g., equipment, goodwill).
- Agricultural land (if not IHT-exempt).
- Assets covered by Business Property Relief (BPR) or Agricultural Property Relief (APR).
The deferred gain reduces the recipient’s cost basis (increasing their future CGT). File the claim with HMRC within four years of the gift.
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Additional Notes:
IHT Interaction: Assets qualifying for BPR/APR may also be IHT-free after 2+ years of ownership.
Trusts: Holdover Relief is often used for gifts into trusts (but may trigger an IHT charge).
Non-Residents: Rules tighten for gifts to non-UK residents post-2019.
Struggling with letting relief? You’re not alone. But here’s the good news – our highly qualified, chartered tax advisors are here to maximise your savings and simplify the process for you.
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