How to reduce your capital gains tax bill ahead of the budget

The annual capital gains tax-free allowance has shrunk to just £3,000 and deferring when you take the gain can mean you pay less tax, or even none at all. However, the existing rules could be changed in Rachel Reeves's upcoming budget, so what can you do to cut your capital gains tax bill?

Capital gains tax, or CGT, is a tax on the profit when you sell (or "dispose of") an asset that has increased in value, such as a property, a stock or a share. It’s the gain you make when the asset is sold or disposed of that’s taxed, not the amount of money you receive.

Some 369,000 taxpayers paid £14.4bn in CGT in 2022/23, when the capital gains tax-free allowance stood at £12,300. The tax-free allowance then dropped to £6,000 in April 2023 and £3,000 in April 2024.

Read more: What we're expecting to see in the autumn budget

"Capital gains tax has tended to be the only thing in life you could solve by putting it off. Every year you had a chunky annual allowance to take advantage of, so you could take a gradual and patient approach to taking your gains," says Sarah Coles, Yahoo Finance columnist and head of personal finance at Hargreaves Lansdown.

"Alternatively, you could wait to realise gains in retirement when you might be on a lower rate of tax. Or, if you planned to pass it on after your death, you could just sit tight on your gain and it would reset to zero."

Many are wondering if there's any real benefit in putting the gain off, especially given rumours that the budget on 30 October could unwind the benefits of saving gains for retirement or until after your death. However, there are still things you can do to reduce your CGT bill.

"Putting things off can still be a great strategy — but you need to do it right — cracking on with some vital steps now, and leaving others for another day," advises Coles.

Here are some handy hacks to cut your CGT.

Strategies for reducing your capital gains tax

1. Defer income, or cut it altogether

The rate of CGT you pay depends on your income tax bracket — because basic rate taxpayers pay at 10% on gains from stocks and shares and higher and additional rate taxpayers pay at 20%. If you can bring yourself into a lower tax bracket, you can pay less tax on at least some of the gain. There are various ways to do this, including by pushing interest into the new tax year, stopping taking pension income and deferring bonuses if you're self-employed or a company director.

2. Consider deferring capital gains to the new tax year if you think you’ll pay a lower rate

This is a popular approach among people nearing retirement, who are expecting their income to fall. If the government increases the rate to match income tax rates, then someone moving from higher rate to basic rate tax will still end up paying 20% on capital gains — so they won’t have gained or lost anything. However, if this change isn’t included in Reeves's budget, you’ll pay less tax.

3. Don’t rush to realise a gain over your annual allowance ahead of the budget

For some people, this was always part of the plan, and it makes sense for their overall finances, so the tax bill is a relatively small price to pay. However, if you’re tempted to realise gains over your annual allowance, just so you can pay a tax bill while you know where you stand, it pays to think twice.

Would you still be happy with this decision if the government doesn’t increase the CGT rate? If not, then you may be better off waiting and realising the gain gradually within your allowance each year.

4. If you had planned to hold the asset for life, you can stick with the plan

If the government doesn’t change the tax rules, CGT will reset to zero on death. If they tweak the rules, you can always realise gains gradually later.

Read more: 10 finance decisions you should avoid before the autumn budget

5. Wait to make the gain on 6 April

Capital gains tax on stocks and shares doesn’t have to be paid until the January after the tax year ends. If you make the gain now, you have to pay it by the end of January 2026. If you make it on 6 April, you don’t have to pay it until the end of January 2027.

If the tax rate is set to be hiked substantially, you can change your plans. If it’s only a small rise, however, the extra interest you can make on the money in the additional year could more than make up for the extra tax you have to pay.

6. Defer a gain by moving into an enterprise investment scheme

If you can’t change the timing of when you make a gain, you can defer the gain, and therefore the tax on it, by investing in an enterprise investment scheme (EIS). In addition to the income tax benefits of these schemes, CGT can be deferred until you sell the EIS shares.

However, EIS are higher risk, so only tend to make sense for those with a higher risk tolerance who have a large and diverse portfolio.

Hacks to use right now to cut your CGT bill

7. Use your allowances

You get an annual CGT allowance on a use-it-or-lose it basis. If you’re building up a big gain, you can realise it gradually, over a period of years, £3,000 at a time, and pay no tax – starting now. You can sell investments and reinvest the money, effectively resetting your gains to zero.

You can simultaneously move these assets into a stocks and shares ISA, if you have the available allowance, using the Share Exchange (Bed & ISA) process so you don’t have to worry about either dividend tax or CGT on these investments.

8. Make use of your losses

In any given year you may have losses on some investments and gains on others. When you complete your tax return, you can add details of the losses you’ve made, which will be offset against the gains when you’re calculating how much capital gains tax you owe.

Read more: How to cut your council tax bill

In some cases, this will bring the CGT bill down to zero. If you make more losses than gains, you should still make a claim for the extra losses. You will then be able to carry them forward into next year to offset against any gains you make then.

9. Use your spouse’s capital gains tax allowance

If you’re married or in a civil partnership, you can transfer the ownership of some assets to your spouse or civil partner. There’s no CGT to pay on the transfer. When they sell up, there may well be tax to pay, and the gain will be calculated by comparing the cost on the day of selling with the day when their spouse originally bought the asset.

However, they have a CGT allowance of their own to take advantage of, so a chunk of the gain won’t be subject to tax. If they’re taxed at a lower rate, they may also pay any CGT at a lower rate too.

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