3 practical ways you could pay less Capital Gains Tax


closeup of share price movement

Limiting the amount of tax you pay is a great way to boost your wealth and to ensure you can live the quality of life you desire. 

Recently, MoneyAge reported that HMRC took a record amount of Capital Gains Tax (CGT) in the 2020/21 tax year. With the number of people paying CGT rising by a fifth, it’s clearly an issue that is affecting more and more individuals.

So, read on to discover three useful ways you may be able to reduce your CGT bill and enjoy more of your gains. Firstly, though, here’s a reminder of when CGT is due.

CGT is a tax on the profit you make on certain assets

CGT is a charge on the profit you make when you sell an asset. It’s important to note that you’re taxed on the profit you make, not the entire sale amount.

Anything that you can be charged CGT on is called a “chargeable asset”.

HRMC regards a chargeable asset as:

  • Most personal possessions over £6,000 (excluding your car)
  • Any property that isn’t your main residence (unless it’s been let out or it’s over 5,000 square feet)
  • Any shares that aren’t in an Individual Savings Account (ISA) or Personal Equity Plan (PEP)
  • Any business assets.

Individuals benefit from an annual CGT exempt amount, which is £12,300 in the 2022/23 tax year. This exemption is frozen to 2026.

So, you’ll only potentially pay CGT if you make gains in any specific tax year over and above your annual exempt amount (more about this below).

If you earn over a certain amount, you’ll have to pay more CGT

CGT is charged depending on your Income Tax rate. So, if you’re a higher- or additional-rate taxpayer then you will potentially pay a higher rate of CGT.

  • Basic-rate taxpayers pay CGT at 10% (18% for residential property)
  • Higher- and additional-rate taxpayers pay CGT at 20% (28% for residential property).

Calculating a CGT liability can be tricky, so it can pay to work with a financial planner.

Here are three ways you could potentially mitigate a CGT bill.

1. You could be exempt from CGT on gains up to £12,300

It’s important to know that not all your gains are liable to CGT – everyone has an annual exempt amount of £12,300. This exemption has been frozen until 2026. 

The exempt amount is strictly annual and can’t be carried forward to the next year unlike other allowances. Because of this, crystallising your profits up to £12,300 each year can be a good way of maximising the exemption.

For example, you could sell non-ISA investments and make a gain of up to £12,300 and then buy these holdings back to “reset” the level at which future gains will be calculated. Remember that, under tax rules, you can’t buy back the same holdings for at least 30 days.

2. Storing your assets in an ISA could shelter them from CGT

ISAs are a great way to shelter your money from CGT, since any returns from ISAs are free of both CGT and Income Tax.

As of 2022/23, you can contribute £20,000 a year to your ISA. Couples can contribute £40,000 a year.

One way to use this allowance effectively is by selling any stocks and shares you have, up to the CGT annual exempt amount, and repurchase them in your ISA. 

This method is sometimes called “Bed and ISA”. Bear in mind that there will be some time between selling the shares and repurchasing them, so any negative market action could decrease the value of your investment.

3. Planning the disposal of your assets as a couple could increase how much of your profit is CGT-free

Coordinating and planning your assets with your partner can maximise how much of your profit remains tax-free. 

Transfers between spouses and civil partners are usually exempt from CGT. So, you can transfer assets from one partner to the other to make the most of your individual annual CGT exemption.

For example, if your annual gains exceed £12,300, transferring some of the assets to your spouse or civil partner could reduce some of the tax burden.

Note that, if you transfer assets to your partner then sell them, you will be charged on gains made during the time it was owned by you as a couple – not since you transferred the assets to them.

Get in touch

If you’re worried about a potential CGT liability, we can help you work out how much CGT you owe and create strategies to mitigate any potential tax bill.

Please contact us via email info@investmentsense.co.uk or call 0115 933 8433.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. 

All contents are based on our understanding of HMRC legislation which is subject to change. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. 

The Financial Conduct Authority does not regulate tax advice.