8 ways to reduce capital gains tax

Capital gains tax (CGT) can reduce your investment returns, so it’s worth understanding how it works and what you can do to reduce it.

CGT is charged on the gains from selling assets that have increased in value, including shares and bonds¹ (although UK government bonds are exempt). It can apply whether investments are held directly or through a fund. Everyone has an annual CGT allowance, which is currently £3,000, and you only pay tax on gains above this amount. The rate you pay depends on your income tax band².

There are several ways to reduce your CGT bill, which we explore below. However, tax can be complex, so we’d suggest speaking to a tax adviser if you’re unsure.

1. Make maximum use of tax-efficient wrappers

The simplest way to reduce capital gains tax is to invest through a stocks and shares individual savings account (ISA). Any growth and income generated by investments in a stocks and shares ISA is free from tax.

Alternatively, if you’re happy to lock in money until retirement³, you could consider putting more into your pension. Money inside a pension is shielded from CGT and you’ll benefit from tax relief on pension contributions.

Making full use of your ISA and pension allowances can help protect your investments from CGT over the long term.

2. Use ‘bed and ISA’ to move investments into a tax-efficient wrapper

If you hold investments outside ISAs, you can still move them into one.

One option is a ‘bed and ISA’ transaction. This involves selling holdings in your general account and buying them back within your ISA. While the sale may trigger CGT, you won’t pay tax on future profits.

Find out more about bed and ISA with Vanguard.

3. Use ‘bed and pension’ to gain tax relief and reduce future CGT

It’s also possible to move investments into a pension through a ‘bed and pension’. You sell holdings in your general account and then buy them back within your pension. Future growth will be tax-free and you’ll also earn tax relief on your pension contribution.

With Vanguard, you’ll need to sell your investments, transfer the proceeds to your bank account and then use the cash to make a pension contribution. This means the process will take a little longer than with bed and ISA. You’ll also need a verified bank account linked to your Vanguard account.

Keep in mind that frequent trading can make it harder to work out the gain or loss on sales of your investments.

4. Use your CGT allowance every year

The CGT allowance is a ‘use it or lose it’ allowance, so it can’t be carried forward to future tax years. So, consider using it before the tax year ends. 

If you’re planning to sell an investment and the gain would exceed your annual CGT allowance, you could spread the sale over a number of tax years. For example, selling part of your investment at the end of the tax year on 5 April and the rest at the start of the next tax year on 6 April could allow you to use two annual allowances, reducing or even eliminating your CGT bill. However, you’ll need to calculate the gain for each transaction very carefully. A tax adviser can help with this.

5. Offset gains by making use of allowable losses

If you sell an investment at a loss, you can use that loss to reduce your tax bill. When you report a loss to HMRC, it’s deducted from any gains you made in the same tax year, helping to lower your CGT bill.

If your total taxable gains are still above the CGT allowance after using your current year’s losses, you can also use losses from previous years. If they reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year. This means if you make a loss one year, you can save it and use it to reduce your taxable gains in the future.

To do this, you must report your losses to HMRC, usually within four years of the end of the tax year in which they arose. You can find out more about reporting losses on the HMRC website.

6. Transfer assets to your spouse or civil partner to reduce CGT

Transfers between spouses and civil partners are usually tax-free. This means you may be able to reduce your tax bill by transferring investments to the partner who pays a lower rate of tax or hasn’t fully used their CGT allowance⁴.

7. Manage your taxable income to keep CGT rates down

CGT rates depend on your income tax band, so reducing your taxable income can help you qualify for a lower CGT rate. 

One way to do this is to make pension contributions. For example, if your income is above the higher-rate tax threshold, making a pension contribution could bring it back into the basic-rate band. This may help reduce the CGT rate you pay.

As tax rules can be complex, consider speaking to a tax adviser if you are unsure.

8. Invest through funds

Investing through well-diversified funds, rather than individual shares and bonds⁵, can also help limit your CGT exposure. 

That’s because you don’t pay CGT when a fund buys and sells its underlying investments. It’s only when you sell your units in the fund – assuming you haven’t done so inside an ISA or pension – that paying CGT becomes a possibility. 

A final note – be mindful of CGT later in life

Assets you leave behind when you die are generally treated as if they were acquired at their market value on the date of death, meaning any gains built up to that point are not usually subject to CGT. This means that selling assets during your lifetime could create a CGT bill that would not typically arise if the assets were held until death. Depending on what is included in your estate at death, those assets could also be subject to IHT when passed on to your beneficiaries.

Careful planning can help reduce the amount of CGT you pay through available reliefs and allowances. If you’re unsure, speak to a financial adviser.

¹ Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.

² For more information on CGT rates, see HMRC’s website.

³ The earliest you can access your private pension money is age 55, rising to 57 from 6 April 2028.

⁴ Capital gains tax, civil partners and spouses, HMRC. Updated April 2026.

⁵ Except for bonds issued by the UK government, which do not incur CGT. View full list.

Investment risk information

Investing gives your money the opportunity to grow over time, but market movements mean values can rise and fall along the way.

Eligibility to invest in a Vanguard Personal Pension depends on your individual circumstances. Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55, rising to the age of 57 in 2028.

If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.

The eligibility to invest in either ISA or Junior ISA depends on individual circumstances and all tax rules may change in future.

Any tax reliefs referred to are those available under current legislation, which may change, and their availability and value will depend on your individual circumstances. If you have questions relating to your specific tax situation, please contact your tax adviser.

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Vanguard only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the products described, please contact your financial adviser.

This article is designed for use by, and is directed only at, persons resident in the UK.

The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information does not constitute legal, tax, or investment advice. You must not, therefore, rely on it when making any investment decisions.

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