How to reduce Capital Gains Tax legally
The short answer: the main legal ways to cut Capital Gains Tax are to use your £3,000 exempt amount every year, share gains with a spouse, keep investments in ISAs and pensions, claim losses and costs, and time sales for years when your income is lower. A couple splitting a £40,000 gain can save £1,740 compared with one person selling, depending on their incomes.
1. Use your exempt amount every year
The first £3,000 of gains each tax year is tax-free. It can't be carried forward, so selling some investments every year, rather than everything at once, can save tax. Spreading a £40,000 gain over two tax years for a higher-rate taxpayer cuts the bill from £8,880 to £8,160.
2. Share with a spouse or civil partner
Transfers between spouses are tax-free. If both own the asset when it is sold, you get two exempt amounts and two basic-rate bands. With one partner earning £60,000 and the other £20,000:
| Higher earner sells it all | £8,880 |
| Half each | £7,140 |
The transfer must be a real, outright gift. Unmarried couples don't get this: a transfer between them counts as a sale at market value.
3. Shelter investments in ISAs and pensions
Gains inside ISAs and pensions are never taxed. Each year you can sell up to your exempt amount and rebuy the same holdings in an ISA, known as bed and ISA. You can't sell and rebuy outside an ISA within 30 days to reset the cost; the "bed and breakfasting" rule ignores it.
4. Pay into a pension to widen the 18% band
Personal pension contributions extend your basic-rate band by the gross amount. With income of £45,000 and a £40,000 gain, a £10,000 gross contribution cuts the CGT from £8,564 to £7,964, on top of the pension tax relief itself. See pension tax relief explained.
5. Claim losses
Losses on other assets in the same year reduce your gains before the exempt amount. Losses from earlier years can be carried forward, but only if you reported them within four years. Selling an investment that has fallen, to crystallise the loss, is a common year-end step.
6. Deduct every allowable cost
For property, include stamp duty, legal fees, agent fees and improvement costs. For shares, include dealing fees. Keep records, since you may be selling decades after buying. See Capital Gains Tax on a second home.
7. Time the sale
- Lower-income year: a career break, retirement or a year with less overtime leaves more of the basic-rate band free.
- Either side of 5 April: splitting a sale over two tax years gives two exempt amounts.
- Payment dates: a sale on 6 April rather than 5 April delays when tax on shares is due by a year, although property CGT is due within 60 days either way.
Other reliefs
- Private Residence Relief: your main home is usually exempt.
- Business Asset Disposal Relief: 18% on qualifying business sales, up to a lifetime limit of £1,000,000, falling to £500,000 from April 2027.
- Gifts to charity: free of CGT.
- Holdover relief on gifts of business assets, and deferral through EIS investment, both with strict rules.
- Death: no CGT is due on assets you leave, and those who inherit take them at their value at death, though Inheritance Tax may apply.
For shares and crypto specifically, see Capital Gains Tax on shares and crypto.
Things that don't work
- Selling and buying back within 30 days outside an ISA: the sale is matched to the new purchase, so the gain isn't reset.
- Transfers to an unmarried partner: treated as a sale at market value.
- Claiming costs without records: HMRC can refuse improvement costs you can't evidence.
- Calling a second home your main home without genuinely living there: HMRC looks at where you actually live.
- Delaying a property sale to avoid reporting: the 60-day deadline applies from completion, and late filing brings penalties and interest.
Putting it together
A couple with a £40,000 gain on shares might: move half to the lower earner, sell some this tax year and the rest after 5 April, and put the proceeds into ISAs. That uses four exempt amounts and more of the 18% band, which can cut the bill to a small fraction of what one higher-rate taxpayer selling everything at once would pay.
Related reading: Capital Gains Tax on divorce.
Rates for 2026/27. This is general information, not tax advice.
Common questions
How can I legally reduce Capital Gains Tax?
Use your £3,000 annual exempt amount every year, share assets with a spouse, hold investments in ISAs and pensions, offset losses, time sales for lower-income years, and claim every allowable cost.
Can I give assets to my spouse to avoid CGT?
Transfers between spouses and civil partners who live together are free of CGT. The receiving partner can then use their own exempt amount and basic-rate band when they sell, but the gift must be genuine and outright.
Do pension contributions reduce Capital Gains Tax?
They can. Personal contributions under relief at source extend your basic-rate band, so more of a gain is taxed at 18% instead of 24%.
What is bed and ISA?
Selling investments and buying them back inside an ISA. It uses some of your exempt amount now, and future growth is tax-free. You cannot simply sell and rebuy outside an ISA within 30 days to reset the gain.
How long do I have to claim a capital loss?
You must report a loss to HMRC within four years of the end of the tax year in which you made it. Reported losses can be carried forward indefinitely.