A mix of rising tax rates and uncertainty surrounding the government’s first Autumn Budget prompted a surge in Capital Gains Tax (CGT) payments, with HMRC collecting a record amount towards the end of 2024. Reports from The Telegraph reveal that between July and November 2024, CGT receipts exceeded £1 billion—an increase of over £200 million compared to the same period in 2023. This sharp rise in CGT collections has been linked to widespread speculation ahead of the Autumn Budget. Many investors, concerned about potential tax hikes and reductions in tax relief, opted to sell assets sooner rather than risk facing a higher bill. Understanding how to reduce capital gains tax in light of these changes is crucial for anyone looking to minimise their liability in 2025.
Since CGT applies to the profit made when selling certain assets, this rush to sell led to a significant increase in the tax collected.
Although the Labour government introduced changes to CGT in the Autumn Budget— including higher tax rates— they were not as severe as many investors had anticipated. Following the Budget announcement on 30 October 2024:
- The basic rate of CGT rose from 10% to 18%.
- The higher rate of CGT increased from 20% to 24%.
With these changes in place, understanding how to reduce capital gains tax has become even more important for those looking to manage their tax liabilities in 2025. The increase could mean the amount of CGT collectively paid continues to rise. Indeed, according to the Office for Budget Responsibility, the changes could increase CGT revenue by around £1 billion by 2029/30. However, it also assigned the figure a “high” uncertainty rating as it can be difficult to judge behavioural responses.
If you could face a CGT bill in the future, read on to discover some practical steps you might take to reduce your liability.
1. Consider your overall tax position
Rather than focusing solely on your liability, it’s important to consider how it fits into your overall tax situation and financial planning. For example, if you’re a basic-rate taxpayer and your total income, including any profits from selling assets, stays below the higher-rate Income Tax threshold (£50,271 in 2024/25), you may benefit from a lower tax rate. If your income is flexible, timing the sale of assets carefully could help minimise the amount you owe.
That said, delaying a sale comes with the risk that the value of your assets could change over time.
2. Make use of your capital gains tax exemption
Each tax year, you’re entitled to a tax-free allowance on profits before any charges apply. This is known as the “Annual Exempt Amount.” For 2024/25, the exemption stands at £3,000 per individual. However, it’s important to note that any unused allowance cannot be carried forward to the next tax year.
By spreading the sale of assets over multiple tax years, you can make full use of this exemption and potentially lower your overall tax liability.
3. Use tax-efficient wrappers when investing
If you’re likely to face a CGT bill when selling investments, using tax-efficient wrappers such as ISAs and pensions can be an effective way to reduce Capital Gains Tax. In 2024/25, you can contribute up to £20,000 into ISAs, and if you invest through a Stocks and Shares ISA, any returns are completely exempt from CGT.
For long-term investing, pensions can also be a smart option. Returns from investments held in a pension are not subject to CGT, and you can typically contribute up to £60,000 in 2024/25 before any additional tax charges apply. However, this allowance may be lower—potentially £10,000—if you’ve accessed a flexible income from your pension or your adjusted income exceeds £260,000.
Keep in mind that pension funds are typically inaccessible until age 55 (rising to 57 in 2028), so consider your overall financial goals before making additional contributions. By strategically using ISAs and pensions, you can make your investments more tax-efficient and explore ways to reduce capital gains tax on future gains.
4. Pass assets to your spouse or civil partner
One effective way to manage your liability is by transferring assets to your spouse or civil partner, as these transfers are typically exempt from CGT. This strategy can play a key role when considering how to reduce capital gains tax.
If your partner has a lower taxable income, transferring assets to them before selling could result in a lower tax charge on the gains. This approach allows you to make better use of available tax allowances and potentially reduce the overall amount owed. By using this approach, you can optimise tax efficiency and minimise your overall bill.
5. Offset your losses
Selling assets at a loss can be frustrating, but these losses can be used strategically to reduce capital gains tax.
Losses can often be offset against gains, potentially lowering your overall CGT bill and even reducing the rate of tax you pay. In some cases, if your losses exceed your gains, you may be able to carry them forward to offset against future profits. To take advantage of this, keeping detailed records is essential. You’ll also need to register any losses with HMRC by completing a tax return to ensure they can be used effectively.
6. Work with a financial planner
Making your CGT liability part of your wider financial plan could help you identify steps you might take to reduce a potential bill in a way that aligns with your long-term goals. A professional can help you explore options such as spreading disposals over multiple tax years, using exemptions effectively, and structuring investments in a tax-efficient way. Please contact us to arrange a meeting and discover how to reduce capital gains tax while optimising your overall financial plan.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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 reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
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