How to Reduce Capital Gains Tax Legally in 2026/27

Use the Annual Exempt Amount Every Year

The £3,000 annual exempt amount is use-it-or-lose-it. Every year you fail to crystallise gains up to £3,000, you lose that year's allowance permanently. Active investors should review their portfolio each year before 5 April and consider whether to realise any gains to use the AEA. Over 10 years, a couple who use both their AEAs every year will have crystallised £60,000 of gains tax-free.

The bed-and-re-ISA technique (sell in the general account, use the AEA, repurchase inside the ISA) systematically moves holdings into the tax-free ISA environment. Once inside an ISA, future growth and income are permanently sheltered. The immediate repurchase inside the ISA avoids the 30-day same-account rule because the new holding is in a different legal wrapper.

Match Gains with Losses

Capital losses, whether from the current tax year or carried forward from earlier years, reduce taxable gains. If you have loss-making holdings that you intend to dispose of eventually, selling them in the same tax year as a large gain can significantly reduce or eliminate the CGT bill. Losses must be reported to HMRC (through Self Assessment) to be officially recognised, HMRC will not automatically discover and apply losses.

Brought-forward losses from previous years are applied to the extent needed to bring the net gain down to the annual exempt amount. Any excess losses are carried forward again. There is no time limit on carrying forward capital losses, so losses from many years ago remain available indefinitely, provided they were reported when they arose.

Transfer Assets to a Lower-Rate Spouse

Gifts between spouses and civil partners are at no-gain/no-loss for CGT purposes. If you are a higher-rate taxpayer (CGT at 24%) and your spouse is a basic-rate taxpayer (CGT at 18%) or has unused AEA, transferring the asset before disposal can save up to 6% of the gain. On a £50,000 gain, that is a saving of £3,000.

The transfer is a genuine gift, the asset must belong to the recipient spouse outright, not just temporarily for tax purposes. HMRC's settlements legislation (section 620 ITTOIA 2005) can apply if the arrangement is primarily tax-motivated and the transferring spouse retains benefits from the asset. For straightforward transfers of investment portfolios or property between genuinely jointly-managing spouses, the strategy is well-established and HMRC-compliant.

Use ISAs and Pensions to Shelter Future Gains

ISAs provide complete CGT (and income tax) exemption. The £20,000 annual subscription limit means it takes time to move large portfolios inside an ISA, but the tax-free compounding effect is substantial over time. Pensions provide a similar shelter, assets inside a pension grow free of CGT. The pension annual allowance is £60,000 for 2026/27 (with carry-forward available for the previous three years), making pensions a powerful tool for those with business sale proceeds or large property gains.

When selling a business or commercial property, consider whether proceeds can be reinvested into a pension in the same tax year. A contribution of £60,000 to a pension not only shelters those funds from future CGT but also generates income tax relief at the marginal rate, which could partially offset the CGT payable on the sale.

Business Asset Disposal Relief

Business Asset Disposal Relief (BADR, formerly Entrepreneurs' Relief) provides a 14% CGT rate on qualifying gains up to a lifetime limit of £1,000,000. Qualifying disposals include shares in a personal company (where you hold at least 5% of shares and voting rights, and the company is a trading company, and you have held shares for at least two years) and business assets used in a sole trade or partnership.

BADR is one of the most valuable reliefs in the CGT system but is complex and easy to lose by failing to meet all the qualifying conditions. The two-year qualifying period for shares must be met before the disposal date. Dilution of a shareholding below 5% through a funding round can potentially eliminate BADR eligibility, so company owners should plan carefully around any investment events that might affect their holding percentage.