Capital Gains Tax Planning: How to Keep More of Your Investment Returns

3 Feb

Investing is all about growing your wealth, but without proper planning, capital gains tax (CGT) can swoop in like an uninvited guest and help itself to your hard-earned gains. Whether you’re selling shares, property, or that cryptocurrency your cousin told you to buy, understanding how to dodge (legally, of course) excessive CGT is crucial. Here’s how to keep more of your money where it belongs, which is in your pocket.

What Is Capital Gains Tax?

CGT is essentially HMRC’s way of saying, “Congrats on your success, now lets both reap the rewards.” It’s the tax you pay on the profit made when you sell an asset that’s increased in value. Key points:

Tax-Free Allowance: For the 2025/26 tax year, you get a miserable £3,000 allowance (thanks, HMRC). Gains above this are taxed.
Rates:
- 18% for basic rate taxpayers.
- 24% for higher and additional rate taxpayers.
- The same applies for property rates.

1. Use Your Annual Exemption

Your annual CGT exemption is a use-it-or-lose-it perk. Here’s how to milk it:

Spread Gains Across Tax Years: Don’t sell everything at once, stagger disposals to maximise multiple years’ allowances.
Transfer to a Spouse: Married? Congratulations! You can transfer assets to your spouse tax-free, effectively doubling your CGT exemption. Romance isn’t dead, it’s just tax-efficient.

2. Offset Gains with Losses

Not every investment pans out. But when life gives you lemons, make CGT offsets.

Declare Losses: Unused losses can be carried forward indefinitely. Just make sure you tell HMRC about them (they’re not psychic, sadly).
Tidy Up Your Portfolio: If an investment’s tanked, selling it can help offset gains elsewhere. Think of it as decluttering your portfolio with financial benefits.

3. Invest Tax-Efficiently

The best way to avoid CGT? Don’t incur it in the first place. Certain accounts and investments are CGT-proof:

ISAs: All growth within an ISA is CGT-free. It’s like a financial invisibility cloak for your investments.
Pensions: Like ISAs, growth is CGT free.
VCTs and EIS: These niche investments offer juicy tax reliefs, including CGT exemption under specific conditions. They’re not for the faint-hearted, but they can be a game-changer if you’re willing and can afford to take the risk.

4. Gift Assets Strategically

If you’re feeling generous (or just want to outsmart HMRC), gifting assets can be a savvy move:

To Family: Transfers between spouses are exempt. Gifts to others may trigger CGT but can reduce future liabilities.
To Charity: Gifts to charities are CGT-free and come with added warm-and-fuzzy feelings.

5. Use Tax-Advantaged Wrappers

If you’re holding investments outside tax-efficient accounts, consider wrapping them up:

Pensions: Sell assets and reinvest the proceeds into a pension to benefit from tax relief and shield future growth.
Insurance Bonds: These allow you to defer tax, giving you control over when you pay. Note, they are a tax deferral product, not tax exempt! You will pay tax, just not immediately.

Conclusion

Capital gains tax may feel like an unnecessary evil, but with smart planning, it doesn’t have to be the end of your financial gains. By using allowances, offsetting losses, and investing wisely, you can keep HMRC’s cut to a minimum.

p.s. not advice obvs!

Katrania Lowers