Three ways to cut your capital gains tax bill

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As HMRC claws in £24.3bn in capital gains tax (CGT) in a single year, Clare Stinton, senior personal finance analyst at Hargreaves Lansdown, explains ways to use allowances to minimise tax liability.

Capital gains tax (CGT) is proving a decent cash machine for the taxman. HMRC data showed capital gains tax (CGT) receipts totalled £24.3bn in 2025-26, up 77% compared to the previous tax year. When compared with a decade ago, the reality is even starker, with the figure up by 244%.

With proactive planning you can lower a CGT bill on your investments. CGT may be payable when selling an investment, but also when gifting an investment to anyone other than a spouse or civil partner.

But when it comes to selling your investments, with proper financial planning and use of your annual tax-free allowances, you can often sidestep an unwanted tax bill, meaning you keep more of investment returns.

Why are CGT receipts rising?

A major driver is the sharp reduction of the annual CGT allowance, now just £3,000, down from £12,300 in 2022-23. This means more people are pulled into paying CGT and on a bigger chunk of their gains.

At the same time, CGT rates also increased in October 2024. The lower rate for basic rate taxpayers hiked from 10% to 18%, and the rate for higher and additional rate taxpayers rose from 20% to 24%. 

Another factor is that some people likely accelerated sales of long-term assets ahead of Labour’s recent Budgets, amid speculation that CGT rates could rise, choosing to lock in rates they knew, rather than risk paying more later.

When disposing of long-term assets, the gains involved can be substantial - with years of market growth and no adjustment for inflation - and can easily exceed the £3,000 allowance. The good news? Paying less, potentially even no CGT on your investments is possible, but it requires proactive planning. Don’t leave it until the point of sale.

How to reduce your CGT bill

1.     Your CGT allowance - use it or lose it

You’ve got a £3,000 tax-free CGT allowance which refreshes each tax year - if you don’t use it, you lose it. It’s possible to offset capital losses incurred in the same tax year against gains that exceed £3,000, as well as being able to potentially deduct losses carried forward from previous tax years to reduce your bill further.

If you’re married, or in a civil partnership, you can transfer investments between you, to take advantage of both CGT allowances - that’s annual gains of £6,000 before tax may be payable. For larger disposals where you expect a tax bill, transferring the assets to a spouse who pays a lower tax rate before selling, could save you a chunk of cash.

2.     Use your ISA allowance

The beauty of holding investments in an ISA is that they are completely tax-free. Every penny of growth is yours to keep, less any investment charges.

If you’ve got existing investments sat outside an ISA, a Bed & ISA enables you to move them into the tax-free wrapper. This does involve selling and rebuying them, so CGT may apply if gains exceed your £3,000 allowance.

This process can be repeated annually until all your investments are tucked up inside your ISA. You may want to prioritise income paying investments to reduce both CGT and dividend tax. 

3.     Use your pension to save for retirement and limit CGT

Like ISAs, investments held in your pension do not attract CGT or dividend tax. But pensions can help you go a step further. Contributing to your pension can directly reduce your adjusted net income, which can keep you below key income tax thresholds.

For CGT purposes, going up a tax band could add another six percentage points onto your tax bill, with tax rates increasing from 18% to 24%. 

With income tax thresholds frozen until 2031, fiscal drag is silently pulling people into higher tax brackets, and over the next few years, more people could find themselves on the wrong side of the boundary because of a pay rise or a promotion.

Paying into your pension can help you maintain a lower income tax status, which in turn means you may keep access to greater tax-free allowances and more favourable tax rates - all while boosting your retirement pot.

About the author

Clare Stinton, senior personal finance analyst at Hargreaves Lansdown