How high income earners reduce Capital Gains Tax
Capital Gains Tax is a significant concern for high-income earners in the UK, particularly following the October 2024 Budget changes. As a result Capital Gains Tax rates have increased, with basic rate taxpayers now paying 18% (previously 10%) and higher rate taxpayers paying 24% (previously 20%). These changes highlight the importance of proactive tax planning to legally reduce Capital Gains Tax (CGT).
This article explores effective CGT reduction strategies for high earners, including:
- Using tax-free allowances
- Spousal transfers
- Investing in EIS and VCTs
- Offsetting gains with losses
What you will learn:
- The latest Capital Gains Tax (CGT) rates following the 2024 Budget changes
- How to use tax-free allowances and spousal transfers to reduce CGT
- How Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) offer CGT relief
- The benefits of offsetting capital gains with investment losses
- How to strategically sell assets to minimise CGT liability
1. Using your tax-free allowances
Each individual in the UK has an annual CGT allowance, which allows a portion of capital gains to be realised tax-free. For the 2024/25 tax year, the allowance has been reduced to £3,000 (down from £6,000 in 2023/24).
How to maximise your CGT allowance
- Time your share sales: Spread asset disposals over multiple tax years to make full use of the annual exemption each year.
- Use family allowances: If your spouse or civil partner hasn’t used their CGT exemption, transferring assets before disposal can double the tax-free amount to £6,000.
High earners should carefully structure their asset sales to stay below the CGT-free threshold where possible.
As an example, ISAs can be used by high earners to save tax, such as CGT and dividend taxes
2. Spousal transfers for tax efficiency
Spouses and civil partners can transfer assets between them tax-free. This allows high earners to:
- Shift assets to a partner who is in a lower tax bracket, reducing CGT liabilities.
- Make use of their partner’s annual CGT exemption, effectively doubling the allowance to £6,000.
Example of how spousal transfers reduce taxes
John, a higher-rate taxpayer, wants to sell shares with substantial gain. If he sells them outright, (after his allowed exemptions) it is taxable at the current rate. Instead, he transfers half to his spouse, who pays 0% CGT because she’s within the basic rate band. This saves them a considerable amount in CGT.
Tip: Transfers must be genuine. You can’t simply transfer assets and immediately sell them back to yourself.
3. Investing in EIS and VCTs to reduce Capital Gains Tax
The Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) are two government-backed investment schemes that offer generous CGT reliefs for high earners.
Enterprise Investment Scheme (EIS) – CGT deferral relief
EIS allows you to defer CGT liabilities if you reinvest gains into qualifying companies.
- Deferral applies even if the original gain is already taxable.
- The deferred gain is only taxed when the EIS shares are sold.
If you hold EIS shares for three years, you also benefit from Income Tax relief (30%) and CGT exemption on growth.
Example of how EIS reduce taxes
Vikram, a high earner, sold a rental property for a £150,000 gain, which would have incurred £36,000 in CGT at a 24% tax rate. Instead, he reinvests £100,000 into an EIS fund, deferring the CGT and receiving £30,000 in Income Tax relief. If he holds the investment for three years, any profits from the EIS shares are completely free from CGT.
Venture Capital Trusts (VCTs) – CGT-free dividends
VCTs provide another tax-efficient investment route:
- Dividends are completely tax-free.
- Gains from selling VCT shares are CGT-exempt if held for at least five years.
- Investors receive 30% upfront Income Tax relief (capped at £200,000 per year).
High earners often use EIS and VCTs to shelter capital gains while benefiting from additional tax reliefs.
Example of how VCTs reduce taxes
Claire, a higher-rate taxpayer, invests £50,000 into a VCT, reducing her Income Tax bill by £15,000 through 30% relief. Over five years, she earns tax-free dividends, creating a steady income stream. When she sells her shares, the gains are tax-free, allowing her to benefit from upfront tax relief and long-term growth.
4. Offsetting gains with losses
Losses on other investments can be used to reduce CGT liability on gains made in the same tax year.
How to use capital losses
- Offset against gains: If you make a £30,000 gain and have £10,000 in capital losses, you only pay CGT on £20,000.
- Carry forward unused losses: If your losses exceed your gains, you can carry forward the excess to offset future gains.
- Report all losses to HMRC: Even if you don’t use them immediately, declaring losses within four years allows you to use them later.
Example of how to offset gains with losses
Emma, a high earner, sells an investment property for a £40,000 gain but also sells shares at a £15,000 loss. She only pays CGT on £25,000, rather than the full amount. As you can see, Emma has expertly navigated the available exemptions to reduce Capital Gains Tax.
5. Gifting assets
Gifting assets before they increase in value can help reduce CGT liabilities later.
How this works:
- Gifting to family members in lower tax brackets allows gains to be realised at a lower CGT rate.
- Gifting to charities results in zero CGT liability and may also qualify for Gift Aid tax relief.
Example of how gifting assets reduces tax
David, a high-rate taxpayer, gifts shares to his son (a basic-rate taxpayer). His son sells the shares and pays 18% CGT instead of 24%—a nice little tax saving.
Article summary
Capital Gains Tax can significantly impact high earners, but with careful planning, it can be reduced or even avoided. Taking full advantage of allowances, spousal transfers, and tax-efficient investments like EIS and VCTs can help minimise liabilities.
Offsetting losses and strategically timing disposals further enhance tax efficiency. High earners should adopt a proactive approach to CGT planning to preserve more of their investment returns.
Seeking expert financial guidance can ensure a personalised strategy for long-term tax savings.
Factors to consider
- Timing of sales: Should you stagger asset disposals over multiple tax years to maximise tax-free allowances?
- Spousal transfers: Can you use your spouse or civil partner’s tax band to reduce overall CGT liability?
- Risk vs. reward in EIS and VCTs: Are you comfortable with higher-risk investments in exchange for CGT deferral and relief?
- Offsetting losses: Have you reviewed past investment losses that can be carried forward to reduce future CGT?
- Long-term vs. short-term gains: Is holding assets longer beneficial, or should you take gains sooner due to potential tax changes?
FAQs: How higher earners reduce Capital Gains Tax
Need a recap? Looking to learn more?
Read our selection of FAQs on the topic of reducing CGT.
How do higher earners reduce Capital Gains Tax?
Higher earners can reduce CGT by using their annual exemption, making spousal transfers, investing in EIS or VCTs, and offsetting losses. Additionally, strategic gifting and deferring gains through reinvestments can further minimise CGT liabilities. Effective tax planning ensures gains are realised at the lowest possible tax rate while maximising available reliefs and allowances to reduce overall liability.
What is the rate for high earners in 2025?
Following the October 2024 Budget, CGT rates increased. Higher-rate taxpayers now pay 24% (previously 20%) on capital gains, while basic-rate taxpayers pay 18% (previously 10%). These changes make tax planning essential for high earners, as the increased rates mean more of their profits will be subject to tax unless strategic tax-saving measures are used.
How do EIS and VCTs help high earners reduce Capital Gains Tax?
EIS and VCTs provide significant CGT reliefs. EIS allows CGT deferral if reinvested gains are held for at least three years, while VCTs offer CGT-free dividends and gains if held for five years. Both schemes provide 30% income tax relief, making them attractive for high earners seeking tax-efficient investment opportunities while also mitigating CGT liability on other asset sales.
Can I reduce Capital Gains Tax by transferring assets to my spouse?
Yes. Transfers between spouses or civil partners are CGT-free, allowing high earners to use both partners’ CGT exemptions. This strategy is effective when one partner is in a lower tax bracket, meaning gains will be taxed at a lower rate or remain within the tax-free allowance, reducing the overall CGT bill significantly.
What happens if I don’t use my allowance?
If you don’t use your £3,000 CGT exemption (2024/25 tax year), you lose it, as it cannot be carried forward. High earners should plan asset disposals strategically to take full advantage of this allowance each tax year, minimising their taxable gains and ensuring more of their investment profits remain tax-free.
Can I use capital losses to reduce Capital Gains Tax?
Yes. Capital losses from other investments can offset taxable gains, reducing overall CGT liability. If your losses exceed your gains, they can be carried forward indefinitely and applied against future taxable gains. Declaring losses to HMRC within four years ensures they remain available for use, making this a valuable tax-planning tool for high earners.
How do I avoid Capital Gains Tax on an investment property?
If the property was your main residence, Private Residence Relief (PRR) may exempt gains from CGT. Alternatively, you can transfer ownership to a spouse or reinvest proceeds into EIS to defer CGT. Selling in stages, gifting to family, or using your annual CGT exemption efficiently can also minimise the tax liability on property sales.
Does gifting shares help reduce Capital Gains Tax?
Yes. Gifting assets to family members or charities can help reduce CGT liabilities, particularly if the recipient is in a lower tax bracket. Transfers to spouses or civil partners are tax-free, while donating to charities completely exempts gains from CGT and can provide Gift Aid tax relief for additional savings.
Can I reinvest gains to defer it?
Yes. By reinvesting gains into EIS or Seed EIS, CGT can be deferred indefinitely until the new investment is sold. This is especially useful for high earners looking for tax-efficient investments. If the investment is held for at least three years, any future gains can become completely CGT-free, making EIS an effective long-term tax strategy.
Should I seek professional tax planning advice?
Yes. CGT planning is complex, and high earners benefit from tailored advice to optimise tax efficiency. A financial advisor can help structure asset disposals, maximise exemptions, and utilise tax-saving investments like EIS and VCTs. Seeking advice ensures compliance with UK tax laws while legally minimising your CGT liability and enhancing overall wealth preservation.
