How to Use the Capital Gains Tax (CGT) Annual Exemption in 2025/26: Smart Planning Tips

What Is the CGT Annual Exemption?

For the 2025/26 tax year, the CGT annual exemption stands at £3,000. This is significantly lower than the £12,300 available as recently as 2022/23, and the drop has limited taxpayers’ ability to shield gains from tax.

This exemption allows individuals to realise gains up to £3,000 without incurring CGT— whether the gain is from shares, a second property, or other chargeable assets.

What Is It Worth?

With CGT rates now up to 24% for higher-rate taxpayers, this exemption could save up to £720 per person each year — or £1,440 for a couple. However, it only applies to gains actually realised within the tax year. It cannot be carried forward or back.

For example, if you sell shares with a £50,000 gain after holding them for 10 years, only the current year’s £3,000 exemption applies — the rest is subject to CGT.

Use It or Lose It

Because the exemption is lost if unused, it may be worth realising gains each year to make full use of it. But what if you want to keep your investments?

The (Old) Bed and Breakfasting Strategy

In the past, some investors used a method known as "bed and breakfasting" — selling shares one day and buying them back the next — to crystallise a gain while retaining the investment. This no longer works due to changes in tax rules introduced in 1998.

Example

‍Bryan purchased BP shares for £15,000. They grew to £18,000, and he wanted to use his CGT exemption. He sold them on a Monday and repurchased them on Tuesday. Under the pre-1998 rules, he would have locked in a £3,000 tax-free gain, with his new base cost set at £18,000.

However, under current rules, any repurchase within 30 daysis "matched" with the sale for CGT purposes. Bryan’s sale and repurchase are effectively cancelled out, and no gain is realised — his base cost remains £15,000.

To avoid this, he would need to wait 31 days before repurchasing, which may be risky if the market price rises in the meantime.

Modern Alternatives: CGT Planning That Still Works

Although traditional bed and breakfasting is no longer effective, there are variations that remain viable:

• Bed and Spouse: Sell the shares, and your spouse or civil partner repurchases them. Transfers between spouses are tax-free, and the gain is realised in your name.
• Bed and ISA: Sell shares, then buy them back within your ISA. This not only banks the gain but also shelters future growth from CGT.
• Bed and SIPP: Sell the shares and repurchase them within a pension (SIPP). This approach also offers the advantage of tax relief on pension contributions.

After 30 days, the shares can be repurchased personally if desired, with any market movement in the meantime captured within the ISA, SIPP, or by your spouse.

Costs and Considerations

It’s important to factor in:

• Dealing charges: Buying and selling shares incurs transaction costs.
• Bid-offer spread: The price you sell at may be slightly lower than the price you need to pay to buy back.

Also, these strategies can be used not only to realise gains but also to crystallise capital losses, which may be useful for offsetting other taxable gains. However, anti-avoidance rules do apply, so advice should be taken.

Year-End Tip

As the end of the tax year approaches, it’s wise to review your portfolio and consider whether any gains can be crystallised tax-free. Combining this with ISA or pension contributions can further optimise your tax position.

Need advice?

‍
We can help you plan ahead to make the most of your CGT exemption and other tax allowances. Get in touch to discuss a personalised strategy that fits your investments and long-term goals.

‍