How to Reduce Capital Gains Tax on Investments

When selling investments or assets, capital gains tax can significantly reduce the profits you actually take home. And, like many parts of the tax system, it can feel complex and a little opaque. But with the right planning in place, investors may be able to reduce or manage their capital gains tax liability entirely within the rules.

In fact, strategic tax planning is one of the simplest ways to protect the value of your investment returns. By understanding the rules, making use of allowances and structuring your investments carefully, you may be able to keep more of the gains you’ve worked hard to achieve.

So if you are wondering are you making the most of the tax opportunities available to you, we’re here to help. Let’s start with the basics.

What is capital gains tax?

Capital gains tax is the tax you pay when you sell an asset for more than you originally paid for it. The key point is that the tax is applied to the gain, not to the asset’s total value. For example, if you bought an investment for £10,000 and later sold it for £15,000, the £5,000 profit is the amount that could be subject to capital gains tax.

It can apply to a range of assets, including:

• Investment portfolios and shares
• Property that is not your main residence
• Certain valuable possessions

The amount you pay also depends on your capital gains tax rates, which vary depending on your income level and the type of asset being sold. Because of these different rates and thresholds, planning ahead can make a significant difference.

Have you ever reviewed how much of your investment gain might actually go to tax?

The capital gains tax allowance explained

One of the most important tools available to investors is the capital gains tax allowance. It lets you realise a certain amount of gains each tax year without paying any tax. Once you exceed the allowance, the remaining gain becomes taxable at the relevant capital gains tax rates.

For the capital gains tax allowance 2026/27, investors can realise gains of up to £3,000 tax-free. The allowance resets every tax year, which means careful planning can help you use it consistently rather than wasting it. As the allowance has been reduced in recent years, proactive planning has become even more important.

6 strategies to reduce capital gains tax on investments

There are several legitimate ways investors can reduce their exposure to capital gains tax. Here are some of the most commonly used strategies.

1. Use your annual capital gains tax allowance

One of the simplest approaches is to realise gains each year up to your capital gains tax allowance. By selling investments gradually rather than all at once, you can use the capital gains tax allowance 2026/27 and future allowances to reduce the total amount of gain that becomes taxable. Over time, this can significantly reduce your overall capital gains tax exposure.

2. Use a “Bed and ISA” strategy

A “Bed and ISA” strategy involves selling investments held outside an ISA and immediately repurchasing them inside the ISA wrapper. This can be powerful because once investments are inside an ISA:

• future gains are free from capital gains tax
• income is also tax-free.

Used alongside your capital gains tax allowance, this strategy can gradually move investments into a tax-efficient structure.

3. Transfer assets between spouses

Spouses and civil partners can transfer assets to each other without triggering capital gains tax. This means couples can effectively use two capital gains tax allowances instead of one. It may also allow assets to be sold by the partner who pays lower capital gains tax rates, potentially reducing the tax bill further.

Have you considered whether your household is using both partners’ allowances effectively?

4. Offset gains with capital losses

If you have investments that have fallen in value, these losses can be used to offset gains. This reduces the total gain that is subject to capital gains tax. Many investors overlook this strategy, but it can be particularly helpful when rebalancing portfolios or exiting underperforming investments. Losses can also be carried forward to offset gains in future years.

5. Spread gains across tax years

Selling assets gradually over several tax years can help you use the capital gains tax allowance repeatedly. Instead of triggering a large gain in one year, spreading the disposal can reduce the amount taxed at higher capital gains tax rates. This approach is often used when selling large investment positions.

6. Use tax-efficient wrappers

Tax wrappers are one of the most effective ways to avoid capital gains tax altogether. The two most common examples are:

• ISAs, where investments grow free from capital gains tax
• Pensions, which also provide powerful tax advantages.

Using these structures consistently can protect a significant portion of your long-term investment growth.

Are most of your investments held in tax-efficient wrappers or sitting in taxable accounts?

When capital gains tax planning becomes important

Planning for capital gains tax becomes particularly important during key financial events, such as:

• selling large investment positions
• rebalancing an investment portfolio
• selling a business
• disposing of second properties or buy-to-let investments.

In these situations, the difference between planning ahead and reacting afterwards can result in a significant tax saving.

Common capital gains tax mistakes investors make

Even experienced investors can make avoidable mistakes when it comes to capital gains tax. Some of the most common include:

• selling assets without planning for the tax impact
• forgetting to use their capital gains tax allowance
• failing to offset available capital losses
• holding too many investments outside tax wrappers.

Because the capital gains tax allowance 2026/27 is relatively modest, overlooking these opportunities can lead to unnecessary tax.

When was the last time you reviewed your portfolio from a tax perspective?

How capital gains tax planning fits into a wider wealth strategy

Effective capital gains tax planning doesn’t happen in isolation. It usually forms part of a wider financial strategy that considers:

• long-term investment planning
• tax efficiency
• retirement planning
• estate planning and wealth transfer.

The goal isn’t simply to reduce capital gains tax today, but to ensure your wealth grows and is preserved as efficiently as possible over time.

When financial advice can help

This is where professional advice can make a meaningful difference. A financial adviser can help you:

• structure your portfolio in a tax-efficient way
• plan investment disposals carefully
• make the most of your capital gains tax allowance
• understand how different capital gains tax rates may affect you
• integrate capital gains tax planning into your broader financial strategy.

Often, small adjustments to the way investments are structured can lead to meaningful tax savings over time.

By understanding the rules, using your capital gains tax allowance and planning disposals carefully, you can reduce the impact of capital gains tax and protect more of your investment gains. Regularly reviewing your portfolio and tax position is an important part of long-term financial planning.

If you’d like help reviewing your investments, understanding the capital gains tax allowance 2025/26 or building a more tax-efficient strategy, get in touch with our team today. We’d be happy to help you plan ahead and make the most of the opportunities available.

This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice.

This document is provided for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial product.

The Financial Conduct Authority does not regulate estate planning or tax planning. A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

 Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.