How to Reduce Capital Gains Tax Legally

CGT is charged on the gain — the difference between what you paid for an asset and what you sell it for — not on the total amount you receive. For the 2026/27 tax year, every individual has an annual exempt amount of £3,000. This means the first £3,000 of total gains in the tax year is free of CGT. Gains above this are taxed at 18% if you are a basic-rate taxpayer and 24% if you are a higher-rate or additional-rate taxpayer. These rates apply to shares, funds and residential property alike.

It is worth remembering that your capital gains are added to your income to decide which rate applies. A gain can therefore push part of your income into a higher band for CGT purposes, even though it is not income. The annual exempt amount cannot be carried forward — if you do not use it in a given year, it is lost.

The simplest way to reduce CGT over time is to make full use of your £3,000 allowance each tax year. If you have a large unrealised gain — for example in a fund or share holding outside an ISA — selling enough each year to use the allowance, rather than selling everything at once, can spread the gain across several years and reduce or even eliminate the tax.

For example, someone with a £12,000 gain who sells everything in one tax year would have £9,000 taxable after the allowance. If instead they realised the gain gradually over several tax years, using a £3,000 exemption each year, far less — potentially none — of the gain would be taxable. This requires planning ahead, because the allowance resets on 6 April each year and cannot be banked.

Investments held inside a Stocks and Shares ISA or a pension are not subject to CGT at all. Moving investments into these wrappers is one of the most effective long-term ways to reduce future CGT.

A common approach is "Bed and ISA", where you sell investments held in a General Investment Account and immediately rebuy them inside your ISA, using your £20,000 ISA allowance for 2026/27. The sale itself may create a gain, so it is best done within your annual exempt amount where possible, but once the investments are inside the ISA, all future growth is free of CGT. Contributing to a pension can also help: as well as removing future gains from CGT, pension contributions attract tax relief and can in some cases reduce the rate of CGT you pay by lowering your taxable income for the year.

Timing matters. Because the annual exempt amount renews each tax year, selling part of a holding before 5 April and the rest after 6 April uses two years' allowances instead of one. For larger holdings, this kind of phasing can make a significant difference.

Married couples and civil partners have a particularly useful option. Transfers of assets between spouses and civil partners are generally exempt from CGT, so an asset can be moved into joint names or into the name of the lower-earning partner before a sale. This can mean two annual exempt amounts are available (£6,000 combined for 2026/27) and that more of the gain is taxed at the lower 18% rate rather than 24%. The transfer must be a genuine, outright gift.

If you have made losses on other investments, these can be set against your gains to reduce the taxable amount. Losses realised in the same tax year are offset first; unused losses can be carried forward to future years, provided you report them to HMRC, usually within four years. This makes it worth keeping records of any investments sold at a loss.

There are also specific reliefs for particular situations — for example, Private Residence Relief, which usually means no CGT is due on your main home, and Business Asset Disposal Relief, which can reduce the rate of CGT on qualifying business disposals. These reliefs have detailed conditions, so it is important to check whether they apply.

A frequent mistake is selling and immediately rebuying the same investment to use the allowance, only to fall foul of the "30-day" share matching rule, which can cancel out the intended benefit. Using a spouse's ISA or rebuying a similar but not identical investment can avoid this. Another is leaving everything to the last minute: because the allowance cannot be carried forward, planning across tax years needs to start early. Finally, forgetting to report losses means they cannot be used later. Because CGT interacts with your income and wider circumstances, the right approach varies from person to person.

For impartial guidance, see MoneyHelper's information on Capital Gains Tax, or the official guidance on rates, allowances and reporting at gov.uk/capital-gains-tax.