In 2022/2023, some 369,000 taxpayers paid £14.4 billion in CGT and since then, the annual tax-free capital gains tax allowance has shrunk from £12,300 to £3,000.

Deferring when you take the gain can mean you pay less tax, or none at all, but this could be unwound by changes in the Budget.

There are still smart moves you can make to cut capital gains tax or wipe it out completely.

Capital Gains Tax has tended to be the only thing in life you could solve by putting it off. Every year you had a chunky annual allowance to take advantage of, so you could take a gradual and patient approach to taking your gains. Alternatively, you could wait to realise gains in retirement when you might be on a lower rate of tax. Or, if you planned to pass it on after your death, you could just sit tight on your gain and it would reset to zero. 

Now the annual allowance has shrunk it has made people wonder if there’s really any benefit in putting the gain off – especially given Budget rumours that could unwind the benefits of saving gains for retirement, or until after your death. Putting things off can still be a great strategy – but you need to do it right – cracking on with some vital steps now, and leaving others for another day.”

Hacks to help you put things off 

Hack 1: Defer income – or cut it altogether. The rate of capital gains tax you pay depends on your income tax bracket – because basic rate taxpayers pay at 10% on gains from stocks and shares and higher and additional rate taxpayers pay at 20%. If you can bring yourself into a lower tax bracket, you can pay less tax on at least some of the gain. There are a number of different ways to do this (explained below).

Hack 2: Consider deferring capital gains to the new tax year if you think you’ll pay a lower rate. This has always been a popular approach among people on the cusp of retirement, who are expecting their income to fall. If the government increases the rate to match income tax rates, then someone moving from higher rate to basic rate tax will still end up paying 20% on capital gains – so they won’t have gained or lost anything. However, if this change isn’t included in the Budget, you’ll pay less tax.

Hack 3: Don’t rush to realise a gain over your annual allowance ahead of the Budget. For some people, this was always part of the plan, and it makes sense for their overall finances, so the tax bill is a relatively small price to pay. However, if you’re tempted to realise gains over your annual allowance, just so you can pay a tax bill while you know where you stand, it pays to think twice. Would you still be happy with this decision if the government doesn’t increase the capital gains tax rate? If not, then you may be better off waiting and realising the gain gradually within your allowance each year.

Hack 4: If you had planned to hold the asset for life, you can stick with the plan. If the government doesn’t change the tax rules, CGT will reset to zero on death. If they tweak the rules, you can always realise gains gradually later.

Hack 5: Wait to make the gain on 6 April. CGT on stocks and shares doesn’t have to be paid until the January after the tax year ends. If you make the gain now, you have to pay it by the end of January 2026. If you make it on 6 April, you don’t have to pay it until the end of January 2027. If the tax rate is set to be hiked substantially, you can change your plans, but if it’s only a small rise, the extra interest you can make on the money in the additional year could more than make up for the extra tax you have to pay.

Hack 6: Defer a gain by moving into an EIS. If you can’t change the timing of when you make a gain, you can defer the gain, and therefore the tax on it, by investing in an Enterprise Investment Scheme. In addition to the income tax benefits of these schemes, CGT can be deferred until you sell the EIS shares. However, EIS are higher risk, so they’re not right for everyone. They only tend to make sense for those with a higher risk tolerance who have a large and diverse portfolio.

Hacks to use right now to cut your CGT bill

Hack 7: Use your allowances. You get an annual CGT allowance on a use-it-or-lose it basis. If you’re building up a big gain, you can realise it gradually, over a period of years, £3,000 at a time, and pay no tax – starting now. You can sell investments and reinvest the money, effectively resetting your gains to zero. You can simultaneously move these assets into a stocks and shares ISA, if you have the available allowance, using the Share Exchange (Bed & ISA) process. That way you don’t have to worry about either dividend tax or CGT on these investments at any point.

Hack 8: Make use of your losses. In any given year you may have losses on some investments and gains on others. When you complete your tax return, you can add details of the losses you’ve made, which will be offset against the gains when you’re calculating how much CGT you owe. In some cases, this will bring the CGT bill down to zero. If you make more losses than gains, you should still make a claim for the extra losses. You will then be able to carry them forward into next year, to offset against any gains you make then. 

Hack 9: Use your spouse’s capital gains tax allowance. If you’re married or in a civil partnership, you can transfer the ownership of some assets to your spouse or civil partner. There’s no CGT to pay on the transfer. When they sell up, there may well be tax to pay, and the gain will be calculated by comparing the cost on the day of selling with the day when their spouse originally bought the asset. However, they have a CGT allowance of their own to take advantage of, so a chunk of the gain won’t be subject to tax. If they’re taxed at a lower rate, they may also pay any CGT at a lower rate too.

Nuts and bolts of deferring income

The aim here is to reduce your taxable income in this tax year from higher rate to the basic rate (so you pay a lower rate of Capital Gains Tax)

1. Push interest into the new tax year: Use fixed term savings accounts, which pay interest at maturity, or savings accounts which pay interest annually rather than monthly. Your interest will then come in a year’s time – falling into a new tax year.
2. Stop taking pension income: If you are withdrawing an income from your SIPP or pension drawdown, you can pause withdrawals until the new tax year, reducing your taxable income for this year. If you need additional money to live off, you may be able to take it tax-free from ISAs, and in the new tax year, you can switch back to taking an income from your pension.

3. Defer bonuses: If you are self-employed or a company director, you may be able to defer income or bonuses until the new tax year – bringing down your taxable income in the current year.

Nuts and bolts of reducing your taxable income 

The aim is to cut your income from higher to basic rate, you can pay a lower rate of capital gains tax)

1. Making a pension contribution effectively extends your basic rate tax band.

2. You can move income-producing assets into your spouse’s name. The transfer won’t trigger a capital gains tax bill, and the income will then be taxed as theirs, cutting the level of income you pay tax on.

EXAMPLE

If you earn £50,270 or more and make a capital gain of £30,000 from stocks and shares, after the £3,000 allowance you’ll pay 20% on the balance – or £5,400.

You may be able to cut the capital gain you make:

• You can give shares to your spouse or civil partner, so you both use your capital gains tax allowances, and only have to consider tax on £24,000 of the gain. If the spouse earns less, they could realise more of the gains, so that at least some of it may be taxed at a lower rate,
• If you also have losses during the year, you can offset them against your gains. Plus, if you have carried forward losses from previous years, you could use those. A couple who can offset losses of £5,000 (and who have also made use of both allowances) is then only paying tax on £19,000 of the gain.

After you’ve done both of those things, so you’re only paying tax on £19,000 of the gain, you can cut your taxable income to reduce the rate of tax you pay. Given the income level in this example, if you cut it by £19,000, it will all be taxable at 10%. You can do this by:

• Making a £19,000 pension contribution.
• If you’re drawing money from a pension, and can plan far enough ahead, you can draw £19,000 of it from ISAs instead – cutting your taxable income.
• If you’re a company director, and take £19,000 as a bonus, you can take it on or after 6 April.
• If you work for yourself, you can time your billing so that £19,000 comes in on or after 6 April.

As a result, you’ll only pay 10% on £19,000 of the gain – or £1,900.

• Sarah Coles is head of personal finance, Hargreaves Lansdown *