Capital gains tax receipts soar – 4 ways to cut your CGT bill

Capital gains tax (CGT) is proving to be a decent cash machine for the taxman. Recent HMRC data revealed that last tax year CGT added just under £24.3bn to the public purse – this is up 77% on the previous tax year (2024/25). Rewind a decade to tax year 2015/16 and CGT receipts have skyrocketed by 244%.

You may have to pay CGT when you sell an investment, or if you gift an investment to anyone other than your 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 your hard-earned investment returns.

This article is for information only and not personal financial advice. Pension, ISA and tax rules can change, and benefits depend on your circumstances. Investing can help your money grow over the long term, but the value of investments can rise and fall, so you could get back less than you put in.

If you’re not sure what’s right for you, a financial adviser can help.

Why are CGT receipts rising?

A major driver is the sharp reduction of the annual CGT tax-free allowance, now just £3,000, down from £12,300 in 2022/23. This delivers a double whammy, pulling more people into paying CGT and on more of their gains. In addition to this, CGT rates increased in October 2024 – from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher and additional rate taxpayers.

Another factor is that some people likely fast-tracked the sale of long-term assets ahead of Labour’s recent budgets, amid speculation that CGT rates could rise. Choosing the ‘better the devil you know’ approach, locking in known rates, 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:

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 that you’ve carried forward from previous tax years to reduce your bill further.

Married or in a civil partnership? You can transfer investments between you to take advantage of both of your 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 or civil partner who pays a lower tax rate before selling, could also save you a chunk of cash.

Remember basic rate taxpayers pay CGT at 18% – that’s 6% less than those who pay tax at a higher rate (24%).

Holding your investments in a Stocks and Shares ISA will keep them free from UK income and capital gains tax. Every penny of growth is yours to keep, less any investment charges.

If you’ve got existing investments sat outside an ISA, a Share Exchange (sometimes called a Bed & ISA) lets you 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. And this can be repeated annually until all your investments are inside your ISA. You may want to prioritise income paying investments to reduce both CGT and dividend tax.

Like ISAs, investments held in your pension don’t attract CGT or dividend tax. But pensions can help you go a step further for money you’re saving for later life (after age 55 or 57 from 2028). 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 6% 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 stay in a lower tax band, which in turn means you may keep access to greater tax-free allowances and more favourable tax rates – all while boosting your retirement pot.

Gilts

If you sell or hold a gilt to maturity, any profit from the difference between what you paid for the gilt and what you sell it for, is free of CGT and doesn’t count towards your £3,000 allowance.

Gilts are loans to the government that are generally viewed as safe investments, which rise and fall in value, and deliver an income. The income which is usually paid twice a year is taxable.

You need to be aware of the risk that the gilt won’t be repaid. As it’s a loan to the UK government, this is unlikely and it has not happened before – but it’s not impossible.

VCTs

You can invest up to £200,000 into a Venture Capital Trust (VCT) every year and benefit from tax-free capital gains and dividends. There’s also 20% income tax relief up front, but you must hold the VCT for five years to keep the tax relief, else HMRC will claw it back.

However, VCTs aren’t for everyone. They’re higher risk investments typically more suited to those with large, diversified portfolios who’ve already maxed out their ISA and pension allowances.