Capital Gains Tax (CGT) is one of those taxes that is quite easy to ignore.
If your investment is going up in value, that feels like good news. The potential tax bill can seem like a problem for another day.
Unfortunately, leaving it until another day can be the problem.
CGT is generally payable when you sell or otherwise dispose of an asset for more than it originally cost you. This can include investments held outside ISAs and pensions, investment properties, second homes and various other assets.
And the tax-free allowance is now much less generous than it once was.
For the 2026/27 tax year, an individual has a CGT Annual Exempt Amount of just £3,000. Above this, gains are generally taxed at 18% or 24%, depending on which income tax band you sit within. We only saw these tax rates increase in the 2024 Autumn Budget, so the direction of travel for CGT is clear.
That makes sensible CGT planning increasingly important.
Don’t Let The Tax Tail Wag The Investment Dog
This is probably the most important point.
You shouldn’t continue owning a poor investment simply because selling it creates a tax bill. Equally, it rarely makes sense to manufacture unnecessary transactions purely to save tax.
The investment decision should come first.
But, once you have decided what you want to own, there may be considerable scope to arrange things more tax-efficiently.
Use Your CGT Allowance Each Year
The £3,000 annual exemption is not enormous but regularly using it can still make a difference.
Suppose an investment portfolio has built up substantial unrealised gains over many years. Rather than waiting until £50,000 or £100,000 of gains need to be realised at once, it may be possible to realise gains gradually over several tax years.
Unused CGT allowances cannot simply be carried forward, so a little annual planning can prevent a much larger liability building up in the future. We show you how effective this can be in our example at the end of this blog.
Make Use Of ISAs
Where possible, investments can gradually be moved from taxable accounts into ISAs.
A commonly used approach is sometimes called “Bed and ISA”. Investments outside the ISA are sold, potentially using some or all of the CGT allowance, and the proceeds are then reinvested within an ISA.
The important point is that the original sale can still create a taxable gain. But once the money is inside the ISA, future investment growth and withdrawals are normally free of Capital Gains Tax.
Repeated year after year, this can steadily move a sizeable portfolio out of the CGT trap.
Think About Assets Held Between Spouses
Married couples and civil partners have another useful planning opportunity.
Assets can normally be transferred between spouses or civil partners who are living together without creating an immediate CGT charge. The recipient effectively takes over the original acquisition cost for CGT purposes.
This can sometimes allow a couple to make better use of two CGT allowances, or potentially realise gains in the hands of the person who has the lower tax rate.
It doesn’t magically make the gain disappear, but it can give couples considerably more flexibility.
Don’t Forget About Losses
Investors naturally notice their winners more than their losers.
For tax planning purposes, both matter.
Capital losses can potentially be offset against capital gains, reducing the amount subject to CGT. In some circumstances unused losses can also be carried forward.
That means CGT planning should usually look at the whole portfolio, rather than simply identifying the investment with the biggest profit.
Think Before You Make A Large Disposal
The timing of a sale can matter too.
Selling investments on 4 April and selling them on 7 April falls into two different tax years. In the right circumstances, spreading disposals across tax years could mean using two annual exemptions rather than one.
Likewise, your wider income tax position can affect the CGT rate applying to at least part of a gain.
This is why a large disposal is often worth planning before the transaction takes place, rather than calculating the tax afterwards.
Good Records Matter
Finally, keep good records.
The CGT calculation generally depends upon what an asset originally cost, together with subsequent purchases, sales and certain allowable costs.
That may sound obvious, but investments can be held for decades. Platforms change, advisers change and paperwork disappears.
Finding the purchase price of an investment bought 20 years ago can be considerably less enjoyable than keeping the information properly recorded in the first place.
The Bigger Picture
Good CGT planning isn’t usually about clever tax schemes.
It is more often about doing several relatively simple things consistently.
Most importantly, CGT should be considered as part of the investment plan rather than after it.
The information above is for general information only and should not be regarded as personalised tax or financial advice. Whilst we can help you with the basics of CGT planning, we are not tax specialists, and therefore some cases/queries will be better suited for an accountant – we are happy to recommend one if needed.
