Can you avoid capital gains tax? 9 ways to reduce your liability

If you’ve worked hard to build something valuable, like your business and need to sell an asset, the last thing you want is a big tax bill eating into your profit.

That tax bill has a name: capital gains tax (CGT). 

Capital gains tax is a tax on the profit you make when you sell, gift or dispose of an asset that’s gone up in value. 

Capital gains tax can apply to things like shares, investment properties and business assets. So, if you bought shares for £5,000 and then sold them for £20,000, you’d potentially owe tax on the £15,000 profit. 

Currently, the rate you pay depends on what income tax band you fall into: 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers (note: these rates apply to the 2025/2026 tax year).

For the avoidance of doubt: you can’t opt out of paying capital gains tax but there are plenty of legitimate ways to reduce capital gains tax — and in some cases, bring your bill right down to zero!

Key takeaways

• CGT is charged on the profit (the gain you receive) from selling or disposing of an asset — not the total amount received
• Everyone gets a £3,000 tax–free CGT allowance per tax year (2025/2026)
• Transfers between spouses or civil partners are generally CGT–free
• Investments held in an ISA are completely protected from CGT
• Smart timing, pension contributions, and using past losses can all reduce your bill

Are you a sole trader, a company director, or someone with investments to manage? Well, there are several tried–and–tested ways to reduce or avoid capital gains tax.

Some methods are relatively straightforward. Others are a bit more involved. 

Read on for nine practical strategies to help you keep more of what you’ve earned.

Transfers between spouses or civil partners are treated as: no gain, no loss. 

This means that capital gains tax isn’t triggered at the point of transfer. 

So, if you’re partnered up (legally), this is a useful tool if one of you pays a lower rate of tax, or if you want to make the most of both of your annual capital gains tax allowances (which is currently £3,000 per person, per year).

Let’s look at an example: say you are a higher–rate taxpayer and you own shares with a gain of £20,000. If those shares are transferred to your spouse (who is a basic rate taxpayer), any subsequent sale of those shares would be taxed at 18% rather than your higher rate of 24%. This could amount to quite a large saving. 

If you split the gain across two tax years (selling the shares across two years rather than in one go) and both use your £3,000 annual allowance, you could potentially save even more.

Here are a couple of important things to keep in mind: 

• The transfer must be a genuine gift (not a loan or a temporary arrangement)
• When you transfer, your partner also takes on your original acquisition cost (known as the base cost), so the gain doesn’t disappear. It’s deferred until they sell

This option is very simple – any investments held inside an ISA are completely protected from capital gains tax (and income tax, too). If you buy shares inside a stocks and shares ISA and they grow in value, you won’t owe a penny in CGT when you sell them.

For the 2025/2026 tax year, you can invest up to £20,000 per year across all your ISAs. That’s a significant amount of tax–free space. 

The ISA allowance is a classic use it or lose it deal, so it’s worth making the most of it before 5 April each year.

One thing to be aware of: you can’t transfer your existing investments into an ISA without selling them first. This would be considered a disposal by HMRC and could trigger CGT. 

But for new investments, starting inside an ISA is one of the easiest ways to protect your money and any gains you make.

Capital gains tax rates are linked to your income tax band. Simply: the less taxable income you have, the lower your CGT rate could be. 

So, another smart way to reduce your taxable income is to pay more into your pension.

Here’s how it works: say your taxable income pushes you just into the higher rate tax band. A pension contribution could bring your income back down into the basic rate band. This means you’d have a CGT rate of 18% instead of 24% on your gains. 

So, if you have a gain of £30,000, that’s a difference of £1,800. For sole traders and directors, this can be a particularly effective bit of year–end planning, especially when timed around an asset sale. The annual pension allowance is £60,000 for most people (or 100% of your earnings, whichever is lower), so there’s often plenty of room to play with. 

As always, it’s worth speaking to a financial adviser if you’re considering this as part of a wider strategy to make sure it’s the right choice for you. 

Did you know that everyone gets an annual CGT exempt allowance of £3,000 per tax year? 

Gains below this threshold are completely tax–free. Win! £3,000 might not sound like a lot, but if you’re savvy about timing, you can use it twice. Or more.

For example: if you own a portfolio of shares with a total gain of £10,000, selling them all in one tax year means you can only protect £3,000. But if you spread the sales over three or four tax years, you could protect the whole gain. You’d pay zero capital gains tax. The same approach applies to other assets, like a collection of artwork.

If you have a second property, while you can’t easily split the sale, couples can effectively double their tax–free allowance to £6,000 by ensuring the property is owned in both names before the sale. 

Note: this method requires a bit of patience and forward planning, but it’s one of the most effective tools available. Especially if you’re a sole trader, as you’ll have more control over the timing of your asset disposals.

If you’ve made a loss on an asset sale in the current or a previous tax year, you can use that loss to offset a gain. This reduces the amount of CGT you owe. This method is known as claiming allowable losses and it can make a real difference to your tax bill.

For example: let’s say you sold shares this year and made a £10,000 gain. But you also sold some shares at a £4,000 loss. You can deduct that £4,000 from your £10,000 gain, leaving only £6,000 subject to CGT (before your annual allowance). So, you would pay tax on just £3,000. 

If you have made losses in previous years: you can generally carry losses forward for as long as you like, as long as they’ve been reported to HMRC. 

However, you must report the loss within four years of the end of the tax year in which it occurred. 

For example: if you made a loss in the 2021/2022 tax year, the deadline would be 5 April 2026. If you don’t report that old loss to HMRC by this date, you’ll lose the ability to offset it against future gains forever. 

Not everything you own is subject to CGT when you sell it. Some assets are specifically exempt, and it’s worth knowing what’s on the list before you assume you have a tax bill to pay.

Personal possessions with an expected lifespan of under 50 years are classed as wasting assets by HMRC. These are generally exempt from CGT. 

What’s a wasting asset? Things like cars, motorbikes, and most machinery. The thinking is that these items naturally lose value over time, so any gain is unlikely.

Other assets that are typically CGT exempt include: 

• Your main home
• ISA and pension assets
• UK government bonds

There are also rules around chattels.

What’s a chattel? These are tangible, movable personal property, such as furniture and even livestock, that is not permanently fixed to land or buildings and is sold for £6,000 or less. 

If you’re not sure whether your asset qualifies, it’s worth checking with a tax professional or checking out HMRC’s information on chattels. 

In certain circumstances, you may be able to delay or even reduce your CGT bill by reinvesting the proceeds from an asset sale back into investments or business assets. This is known as rollover relief and is particularly useful for business owners. Here’s why: the gain isn’t wiped out but rolled into the new asset and taxed when that asset is eventually sold. 

To qualify, the new asset must be purchased within one year before, or three years after, the sale.

Good to know: there’s also something called holdover relief, which lets you defer CGT when gifting business assets to someone else. 

This is particularly relevant for company directors looking to pass on shares or business assets. These reliefs have specific conditions, and not all assets or buyers qualify, so if you’re planning a business exit or restructure, it’s worth getting professional advice early.

If you’re a sole trader or a director selling your business, you may be able to get Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief. This is one of the most valuable CGT reliefs available to small business owners.

Business Asset Disposal Relief reduces the CGT rate on qualifying business sales up to 14% (for the 2025/2026 tax year). Business Asset Disposal Relief applies to gains up to a lifetime limit of £1 million. That means a potential saving of up to £100,000 over your lifetime, compared to paying CGT at the full higher rate of 24%. 

If you qualify, it could be worth claiming.

To be eligible, you must:

• Have owned and run the business for at least two years
• Be a sole trader, business partner, or hold at least 5% of shares in a trading company where you’re an employee or director

Good to know: the BADR rate is scheduled to rise to 18% from April 2026. If you’re planning a business sale, timing could matter. 

If you’re still in the early stages of structuring your business, you might want to consider forming a limited company. Countingup can help with the company registration process, and your new limited company will be up and running within 24 hours.

If you’re gifting business assets, rather than selling them, you might be able to claim gift hold–over relief. This defers any CGT on the gift, passing the gain onto the recipient instead. Hold–over relief is often used when passing a business on to a family member or the next generation of owners.

The relief is available on: 

• Assets used in a trade
• Shares in a qualifying company
• Agricultural land

Both the giver and recipient need to agree and sign the claim form together.

Again, the gain isn’t eliminated. It’s just deferred to the recipient. 

The recipient also takes on a lower base cost. This means they may face a larger CGT bill when they eventually sell. 

For example: imagine you gift an asset worth £60,000 to your sister that originally cost you £17,000, creating a potential gain of £43,000. 

By filing a joint claim for gift hold–over relief, you freeze that tax bill rather than paying it immediately. Your sister then inherits your original tax position: instead of her starting cost being the £60,000 market value, it’s reduced by your £43,000 held–over gain, leaving her with a base cost of £17,000 for whenever she eventually sells it.

If the person you gift an asset to is in a lower tax bracket, or they plan to hold the asset for a long time, this method can be very tax–efficient over time.

It depends on how you hold them. Shares held outside of an ISA or pension are potentially subject to CGT when you sell them at a profit. But there are a few ways to manage your exposure.

As we’ve mentioned, the simplest route is to hold shares inside a stocks and shares ISA because gains within an ISA are completely CGT–free. 

Beyond that, you can use your £3,000 annual exempt amount, offset any losses from other share sales, and spread disposals across tax years to make the most of each year’s allowance.

Good to know: some share–based investments are designed to be tax-efficient. This includes Enterprise Investment Schemes and Seed Enterprise Investment Schemes, which can offer you CGT exemptions or deferral relief. 

If you’re interested, you can check out more details on how Enterprise Investment Schemes work and how Seed Enterprise Investment Schemes can help small businesses secure more capital. 

Note: these are specialist products with their own rules and risks, so it’s always a good idea to get professional advice before taking the plunge.

As you’ve seen, there are plenty of legal (and sensible!) ways to reduce your capital gains tax.

From using your annual allowance and investing through ISAs, to timing sales and claiming specialist reliefs, a bit of planning can make a significant difference to how much you hand over to HMRC.

The key is not to leave it until the last minute. Many of these approaches require planning. Especially when it comes to business disposals, asset transfers, or pension contributions. 

If you’re unsure where to start (it can feel complicated, after all), an accountant or financial adviser can help you build a plan that works for your situation.

In the meantime, if you’re running your own business, staying on top of your finances year–round makes everything, including taxes, a lot easier. 

You might want to consider opening a dedicated business current account that’s built for sole traders and small business owners to help you keep your financial records in one place. So when tax season rolls around, you’re already one step ahead of things like capital gains tax. 

And finally, if you’re looking for more tips and guidance about tax and growing your small business, head over to our resource hub. 

Usually not. Your main residence is protected by Private Residence Relief. This means that, in most cases, any gain you make when you sell your home is completely exempt from capital gains tax. The relief applies for the entire period you lived in the property as your main home, plus the final nine months of ownership (even if you’ve moved out).

Yes, gold is a chargeable asset for capital gains tax purposes. If you sell gold bullion, gold coins (other than certain UK legal tender coins, like sovereigns and Britannia coins, which are exempt), or gold ETFs at a profit, you may owe CGT on the gain. Your £3,000 annual exempt amount applies, and you can use any capital losses to offset gains. 

When you inherit a property, you don’t pay capital gains tax at the point of inheritance — that’s an inheritance tax matter. However, if you later sell the inherited property and it’s gone up in value since the date of death, you may owe capital gains tax on that gain. Your base cost for CGT purposes is the value of the property at the date of death (the probate value), not what the deceased originally paid for it. So if you sell soon after inheriting and the value hasn’t changed much, your CGT bill could be minimal.