What is the legal way to reduce capital gains tax in the UK?

undefined CGT mitigation is entirely legal when done within the rules. The key strategies are: (1) use your annual exempt amount every year — it's use it or lose it; (2) claim BADR if selling a business — this reduces the rate from 24% to 18% (from April 2026); (3) report and carry forward capital losses; (4) transfer assets to a spouse tax-free to use their allowances; (5) use holdover relief to defer gains on gifts of business assets; (6) reinvest gains in EIS-qualifying shares for CGT deferral. The critical point is to plan before the disposal, not after. Relevant legislation: TCGA 1992 — full CGT framework. BADR: s.169I. Annual exemption: s.3. Spouse transfers: s.58. Holdover relief: s.165.. Example: A client with a £50,000 gain used their £3,000 annual exemption, offset £10,000 of carried-forward losses, and transferred half the asset to their spouse (using their exemption too). CGT reduced from £12,000 to £4,080. Common mistake: Attempting aggressive 'tax avoidance' schemes that promise to eliminate CGT. These are frequently challenged by HMRC under the General Anti-Abuse Rule (GAAR) and can result in penalties and interest on top of the original tax.

How much CGT will I pay on a £100,000 gain?

undefined The exact CGT depends on your income tax band, the asset type, and available reliefs. For 2026-27: basic rate taxpayers pay 18% on gains (within their basic rate band), higher/additional rate taxpayers pay 24%. BADR reduces the rate to 18% (from April 2026) for qualifying business assets. Residential property gains are always at 18%/24% regardless of other reliefs (except PPR). Relevant legislation: TCGA 1992 s.4 (rates); FA 2024 s.15 (property rate reduction to 24%). BADR: TCGA 1992 s.169I.. Example: A higher-rate taxpayer selling shares with a £100,000 gain: £97,000 taxable at 24% = £23,280 CGT. With BADR: £97,000 at 18% = £17,460. With spouse split + BADR: £47,000 at 18% each = £16,920 total. Common mistake: Forgetting to deduct the annual exemption, capital losses, and incidental costs of disposal (agent fees, legal fees) before calculating the gain. These all reduce the taxable gain.

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Capital Gains Tax Mitigation Strategies

Legitimate strategies to reduce or eliminate Capital Gains Tax liabilities in the UK.

Quick Answer

Effective CGT mitigation involves a combination of timing disposals to use your annual exemption, offsetting capital losses, claiming Business Asset Disposal Relief (18% rate up to £1M, increased from 10% before April 2025), using holdover relief on gifts, structuring assets within ISAs and pensions, and — for larger gains — considering trust structures or deferral reliefs. The key is to plan before the disposal, not after.

The Core CGT Mitigation Strategies

There are several legitimate strategies to reduce CGT. The right approach depends on the asset type, the gain size, your income level, and whether the assets are held personally or through a company.

Use the annual exempt amount (£3,000 for 2026-27) — it cannot be carried forward, so use it or lose it each year
Claim Business Asset Disposal Relief (BADR) — 18% CGT rate on qualifying business disposals up to £1M lifetime limit (increased from 10% before April 2025)
Offset capital losses against gains — including losses from previous years brought forward
Time disposals across tax years to use two annual exemptions (e.g., sell half before 5 April, half after)
Transfer assets to a spouse (tax-free between spouses) to use their annual exemption and lower tax band
Holdover relief on gifts of business assets — defer the gain until the recipient disposes of the asset
Invest in EIS/SEIS shares — 50% CGT income tax relief plus CGT deferral on reinvested gains
Bed-and-ISA — move chargeable assets into an ISA wrapper to shield future gains

Business Asset Disposal Relief (BADR)

BADR (formerly Entrepreneurs' Relief) is the single most valuable CGT relief for business owners. From April 2026, it reduces the CGT rate from 24% (higher rate) to 18% on qualifying business disposals, up to a £1M lifetime limit. On a £1M gain, this saves £60,000 in CGT compared to the standard 24% rate.

To qualify, you must have held the shares for at least 2 years before disposal, the company must be a trading company, and you must be an officer or employee of the company. The conditions are strict — specialist advice is essential before selling.

CGT on Property vs Other Assets

From April 2024, residential property gains are taxed at 24% (higher rate) and 18% (basic rate), while other chargeable assets are taxed at 24% and 18% respectively. The property rates were reduced from 28% and 18% in the Spring Budget 2024.

This means CGT mitigation on property focuses on different strategies: Principal Private Residence relief (PPR), lettings relief (now heavily restricted), and timing the disposal to span tax years. For non-property assets, the focus is on BADR, EIS deferral, and annual exemption planning.

Relevant Legislation

Capital Gains Tax is governed by the Taxation of Chargeable Gains Act 1992 (TCGA 1992). BADR: TCGA 1992 s.169I. Annual exempt amount: TCGA 1992 s.3. Holdover relief: TCGA 1992 s.165 (business assets) and s.260 (gifts into trust). EIS CGT deferral: TCGA 1992 s.150.

Practical Example

A business owner selling company shares with a £800,000 gain would pay £192,000 CGT at 24%. By claiming BADR (18% rate from April 2026), the CGT was reduced to £144,000 — a saving of £48,000. We also advised gifting some shares to the spouse before the sale, using their £1M BADR lifetime limit and annual exemption, saving a further £24,000.

Common Mistake

Selling a business or shares without checking BADR eligibility first. Once the disposal has been made, it is generally too late to restructure to qualify. The 2-year holding period and trading company conditions must be satisfied before completion. Another common mistake is forgetting to claim losses — many people don't realise that unused losses can be carried forward indefinitely to offset future gains.

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