Capital gains tax (CGT): a guide for UK investors

Any profit you make from selling an asset could be subject to capital gains tax (CGT). This could be as much as 24%, so it’s important you are aware of how CGT could affect you and factor it into your calculations when making investment decisions. So, how could you reduce your capital gains tax?

Capital gains tax explained

How does capital gains tax work? Capital Gains Tax is applied to the profit – or ‘capital gain’ – you make when you sell or dispose of certain assets, regardless of their total value. However, gains below the annual tax-free allowance are not taxed.[1] Not every disposal triggers an immediate CGT bill. For instance, when you gift an asset to your spouse or civil partner, the transfer is treated on a no-gain, no-loss basis – any gain is deferred until they eventually dispose of the asset. By contrast, some disposals are genuinely exempt, such as selling your private car. There are also tax-efficient vehicles for holding investments. For example, gains made within an ISA are completely free from CGT. While offshore bonds are not subject to CGT, gains are instead taxed as income, which can be at rates of up to 45%.[2] Using a diverse range of CGT free tax wrappers effectively is key if you might be affected by Capital Gains Tax.

Capital gains tax allowance 2025

Basic rate taxpayers will typically pay 18% in capital gains tax for any gains that they crystallise, and higher rate taxpayers are required to pay 24%. [3]

So, if you purchase shares in a general investment account for £10,000 and sell them for £30,000, you will have made a gain of £20,000. If you are a basic rate taxpayer, £3,600 will be levied in CGT and £4,800 will be applied for a higher rate taxpayer.

What is the annual capital gains tax allowance?

There is an ‘annual allowance’ provided by the UK government. Any individual can realise gains up to £3,000 in a single tax year.¹ As long as no gains were made elsewhere, the £20,000 gain in the previous example could therefore be reduced to £17,000, and £3,060 and £4,080 would be levied for basic and higher rate taxpayers respectively.

How to reduce the capital gains tax you pay

Using your annual CGT allowance effectively can be a key component of sophisticated financial planning. If you have investments held within a taxable account, a high quality financial planner will look to make disposals on an annual basis to make use of your annual allowance and continually reduce the gains within your portfolio. They typically subscribe the sale proceeds to an ISA or re-invest them into a very similar investment fund before returning them to the original investments after 30 days have passed.[4] As I am sure you can gather, this is not a straightforward process, so it’s best to leave it to the professionals if you aren’t confident in how to achieve this.

How to reduce CGT on UK property

One asset where it’s more challenging to make use of your annual CGT allowance is property. Unfortunately, you can’t sell portions of a property in the same way you can an investment portfolio, so gains can build up on buy-to-lets. While your primary residence can qualify for relief from CGT, it is not automatically exempt. In most cases, up to 100% relief is available if the property has been your only or main residence throughout the entire period of ownership. However, any time the property is not treated as your main residence, such as periods when it’s let out or left vacant, may be subject to CGT with only partial relief available. Currently, the same rates of CGT I mentioned earlier also apply when selling a second property as the higher rate was reduced from 28% down to 24% in April 2024.¹ Unfortunately, there is little you can do to avoid it, which can often make investing a more attractive option.

One of the few ways you can avoid paying CGT on a second home, or in fact on any asset, is by offsetting losses made on other disposals against the gain you have realised. You don’t have to report a capital loss in the same tax year it occurred. Instead, losses can be claimed up to four years after the end of the tax year in which the disposal took place. Once reported, they can then be used to offset gains in future tax years. If you are already making use of tax wrappers such as ISAs and offshore bonds, you could also consider other options like venture capital trusts to reduce your CGT position further. It is important to remember, however, that these come with complications, are generally high risk, and are only appropriate in the right circumstance.

How to reduce CGT on shares

Capital gains tax on shares can sometimes be reduced through careful planning and use of available exemptions and allowances. An effective strategy is to make use of your annual capital gains tax allowance by realising gains incrementally over several tax years, rather than in a single disposal.

Two common tax planning strategies are known as ‘bed and ISA’ and ‘bed and spouse’.[5]

‘Bed and ISA’ involves selling shares or funds that have increased in value and then repurchasing the same or similar investment inside a stocks and shares ISA. This enables future gains to grow free from CGT. The proceeds from the sale are used to fund your ISA allowance, which is £20,000 for the 2025/26 tax year. However, it is important to note that you cannot sell and immediately repurchase the exact same asset in the same account. Most people will sell the investment in a general account and then buy the same or a similar fund or stock within their ISA. Some platforms will facilitate this for you as a single transaction. If in doubt, speak to a financial adviser or platform provider to ensure the process is completed correctly.

‘Bed and spouse’ involves selling an investment and transferring the cash or assets to your spouse or civil partner, who then repurchases the same or similar investment. This spreads the gain across two individuals, allowing use of both partners’ CGT allowances and potentially taking advantage of a lower tax rate if your spouse pays tax at the basic rate. However, for the tax treatment to be effective, there must be a genuine, unconditional transfer of beneficial ownership, meaning your spouse must be the person who truly benefits from the investment and any proceeds. HMRC focuses on the beneficial owner when assessing CGT liability, so both the substance and intent of the transfer must be authentic.[6] Once assets are transferred, they legally and beneficially belong to the recipient, so this strategy should only be used where there is full trust and confidence in the relationship.

You can also offset realised gains against any losses on other investments in the same tax year. Losses not used in the current year can be carried forward indefinitely, provided they are reported to HMRC within four years of the end of the tax year in which they occurred.[7]

While these methods are widely accepted, they must be used correctly and within the spirit of the law. Tax rules can change, and professional advice should be sought to ensure compliance and suitability.

How to reduce CGT on deceased estates?

Capital gains tax is not applied at the time of death. Beneficiaries inherit assets at their market value on the date of death, often referred to as the probate value.[8]

If the assets are later sold by the beneficiary and have risen further in value since the date of death, a CGT liability may arise at that point. The gain is calculated as the difference between the sale price and the probate value.

Beneficiaries should consider the timing of any sales to manage the CGT exposure. If assets are jointly inherited with a spouse or family member, each individual can use their own CGT allowance.

If inherited assets have fallen in value since the date of death, any losses realised on sale can be used to offset gains on other assets, either in the same tax year or carried forward to future years. If the estate itself disposes of assets before they are distributed to beneficiaries, then the estate is responsible for any CGT, and personal representatives must ensure all tax is calculated and paid before distribution.

Given the tax implications and complexities involved in estate administration, it’s advisable to seek professional advice to ensure the correct tax treatment is applied and reliefs are maximised.

How to reduce CGT on cryptocurrency

Cryptocurrency is treated by HMRC as a capital asset, so any disposal that results in a profit may give rise to a CGT liability. A disposal could include selling for cash, swapping for another cryptocurrency, gifting to someone other than your spouse, or using crypto to pay for goods or services. This applies even if the transaction takes place on a decentralised exchange or peer-to-peer platform.[9]

As always, to reduce CGT on cryptocurrency, investors can take advantage of their annual capital gains tax allowance. Where possible, it may be worth spreading disposals across multiple tax years to stay within the allowance.

Many investors in crypto experience volatility , which means losses are not uncommon. It’s important to recognise that crypto assets are considered high-risk investments, working with a financial adviser is recommended. Losses on crypto investments can be offset against gains on other assets in the same tax year, or carried forward to reduce future gains. To claim a loss, you must make a formal claim to HMRC within four years of the end of the tax year in which the loss occurred.

It is also worth noting that not all activity involving crypto is subject to CGT. For example, transferring assets between wallets you control is not considered a disposal. It is also worth noting that not all activity involving crypto is subject to CGT. For example, transferring assets between wallets you control is not considered a disposal. However, some activities may be subject to income tax first, with CGT then applying on any increase in value from the point of acquisition. The tax treatment will depend on the specific nature and scale of the activity, and in some cases, HMRC may treat it as a trading activity subject to income tax.

Investors who are unsure of their tax obligations or need help managing their CGT liability on crypto assets should consider seeking advice from a qualified accountant, particularly regarding reporting requirements. Financial advisers may also help with broader tax planning strategies.

It’s important to remember that tax planning is not a regulated activity under the Financial Conduct Authority (FCA), and cryptocurrency itself is largely unregulated in the UK. This means it’s highly unlikely you would be protected by the Financial Services Compensation Scheme (FSCS), and you should not expect compensation for any crypto-related losses.[10]

Capital gains tax planning

Capital gains tax can have a significant impact on your potential profits, so having a clear understanding of how and when it is applied is key to effective financial planning. It’s also important to ensure you are active in managing it, particularly when considering your investments. Managing CGT effectively can be reasonably complex so seeking professional advice early on is recommended to minimise its potential impact on your finances.