How Can I Reduce My Capital Gains Tax Legally

Understand what Capital Gains Tax is

CGT is a tax on the profit (or “gain”) you make when selling certain assets. It’s not charged on the total sale value, only the increase in value since you acquired the asset.

For individuals, CGT usually applies to:

Shares and investments outside ISAs or pensions

Second properties and buy-to-let homes

Businesses or business assets

Valuable personal possessions worth more than £6,000 (such as art or antiques)

Different rates apply depending on your income tax band and the type of asset you sell.

For the 2025 26 tax year:

Basic rate taxpayers pay 10% on most assets or 18% on property.

Higher and additional rate taxpayers pay 20% on most assets or 24% on property.

Understanding how CGT is calculated helps you plan your disposals more efficiently.

Use your annual CGT allowance

Every individual has a Capital Gains Tax annual exemption, also called the Annual Exempt Amount. For the 2025 26 tax year, it is £3,000.

This means the first £3,000 of profit you make from selling chargeable assets in the tax year is completely tax-free.

If you’re married or in a civil partnership, each partner has their own exemption. By transferring ownership of assets between you before selling, you can effectively double the allowance to £6,000.

Example:
If a couple jointly owns shares and sells them for a £6,000 gain, they can use both exemptions and pay no CGT at all.

Time your disposals carefully

Timing can make a big difference to your CGT liability. Because the exemption resets each tax year (6 April to 5 April), you can spread sales across multiple years to make the most of it.

If you’re planning to sell several assets, consider disposing of some before the end of one tax year and others after 6 April. This way, you can use two years’ worth of allowances and potentially halve your tax bill.

Similarly, if you expect to move into a lower income tax band next year, delaying a sale could mean your gain is taxed at a lower CGT rate.

Offset losses against gains

If you make a loss on selling an asset, you can use that loss to offset other gains in the same tax year.

For example, if you make a £10,000 gain on shares but a £4,000 loss on another investment, you’ll only pay CGT on £6,000.

If your losses exceed your gains, you can carry the unused amount forward to offset against future profits. You must report these losses to HMRC, usually within four years of the end of the tax year in which they occurred.

This is a valuable strategy for investors and property owners who experience fluctuating market conditions.

Transfer assets to your spouse or civil partner

Transfers between spouses or civil partners are free from CGT, allowing couples to share assets and reduce their overall tax burden.

By transferring part of an asset before selling, you can:

Use both partners’ annual CGT exemptions.

Make better use of the lower-rate taxpayer’s CGT band.

Example:
If one partner is a higher rate taxpayer and the other is basic rate, transferring some of the asset to the lower earner before sale can reduce the overall CGT rate from 20% to 10%.

The key is that the transfer must take place before the sale and while you are both living together.

Make use of tax-free investment accounts

Certain investment accounts are completely exempt from Capital Gains Tax, regardless of how much profit you make.

The most common examples are:

ISAs (Individual Savings Accounts): Any gains from investments held inside an ISA are tax-free. You can invest up to £20,000 per year across cash and stocks and shares ISAs.

Pensions: Contributions into personal pensions or SIPPs receive tax relief on the way in, and any investment growth inside the pension is free from CGT.

Moving investments into ISAs or pensions where possible is one of the simplest ways to protect future gains from tax.

Claim Business Asset Disposal Relief

If you sell a business or shares in a trading company, you may qualify for Business Asset Disposal Relief (BADR). This reduces the CGT rate to 10% on qualifying gains up to a lifetime limit of £1 million.

You must meet certain conditions, including owning the business for at least two years and holding at least 5% of the shares and voting rights if it’s a company sale.

For entrepreneurs and company directors, this relief can result in huge tax savings when exiting a business.

Consider Rollover or Holdover Relief

If you’re reinvesting proceeds into new business assets, you might be able to defer CGT through Rollover Relief.

This relief allows you to postpone paying tax if you buy a new qualifying business asset within three years of selling the old one. The gain is “rolled over” and only becomes taxable when the replacement asset is sold.

Similarly, Holdover Relief can apply when you give away business assets or shares. The gain is transferred to the recipient, deferring the tax until they eventually sell.

Both reliefs are useful for succession planning and business reinvestment.

Give assets to charity

Donating assets to a registered UK charity is another legal way to avoid Capital Gains Tax. When you make a qualifying gift, no CGT is due on any gain.

You can also claim income tax relief on the value of the gift if you are a higher rate taxpayer, making charitable giving both tax-efficient and rewarding.

Take advantage of your main residence exemption

Your main home is usually exempt from Capital Gains Tax under Private Residence Relief. However, if you own more than one property, you can nominate which one should be treated as your main residence for tax purposes.

If you plan to sell a second property, it may be worth reviewing your nomination with HMRC to ensure you maximise your relief entitlement.

Additionally, if you rent out part of your home or sell a property that was previously your main residence, you may be able to claim Letting Relief on part of the gain.

Spread ownership through family or trusts

In some cases, transferring ownership of assets to family members or trusts can reduce future CGT bills. This strategy can help distribute gains across several people who each have their own allowances and lower tax rates.

However, these arrangements can be complex and may have other tax implications such as Inheritance Tax, so professional advice is essential before taking this route.

Keep records and plan ahead

Accurate record keeping is vital for managing Capital Gains Tax efficiently. Keep all purchase and sale documents, receipts for improvements, and details of associated costs. These reduce the gain and therefore your CGT liability.

Regularly reviewing your portfolio with a tax adviser or accountant can help identify opportunities to realise gains strategically and stay compliant with HMRC rules.

Final thoughts

Capital Gains Tax can take a substantial bite out of your profits, but with smart and lawful planning, it’s possible to reduce or even eliminate much of the bill. Making full use of your annual allowance, sharing assets with your spouse, offsetting losses, and investing through ISAs or pensions are among the simplest and most effective methods.

For business owners, additional reliefs like Business Asset Disposal Relief, Rollover Relief, and Holdover Relief offer even greater opportunities to save.

Tax-efficient planning should always be proactive rather than reactive. By understanding the reliefs available and structuring sales carefully, you can keep more of your gains working for you — and pay only the tax that is truly due.