How to Reduce Capital Gains Tax on Your Property Portfolio: Practical Planning Strategies

Selling a rental property or part of a portfolio can trigger a significant Capital Gains Tax (CGT) bill. However, with the right planning—especially ahead of a sale—there are several legitimate ways to reduce the tax payable.

This is an area where early advice can make a substantial difference. Once contracts are exchanged, most planning opportunities are lost.

Understanding the Basics of CGT on Property

When you sell a property that is not your main residence, CGT is typically payable on the gain.

The gain is calculated as:

Sale proceeds – purchase cost – allowable costs (e.g. legal fees, improvements)

For 2025/26:

• Each individual has an annual CGT exemption of £3,000
• Gains above this are taxed depending on your income tax band

For residential property:

• Basic rate taxpayers: 18%
• Higher/additional rate taxpayers: 24%

Because of these relatively high rates, planning ahead is essential.

1. Use Both Spouses’ Allowances and Tax Bands

One of the most effective strategies is to ensure that both spouses or civil partners are fully utilised.

Transfers between spouses are treated as “no gain/no loss”, meaning:

• No CGT is triggered at the point of transfer
• The receiving spouse inherits the original base cost

This allows you to:

• Use two annual exemptions (£6,000 combined)
• Spread the gain across two tax bands
• Potentially reduce exposure to higher rates

As confirmed in the ICAEW material, ownership can be adjusted prior to sale to take advantage of unused allowances and lower tax bands

2. Adjust Ownership Before Sale

If a property is currently held in an inefficient split (e.g. 95/5), it may be beneficial to rebalance ownership before disposal.

For example:

• Transfer a larger share to the spouse with unused basic rate band
• Reduce the proportion taxed at higher rates

This must be done:

• Before exchange of contracts
• With proper legal documentation

Even relatively small adjustments can lead to meaningful tax savings.

3. Consider Your Ownership Structure (Joint vs Tenants in Common)

As covered in the previous post, how the property is held matters.

• Joint tenants → typically fixed 50:50 split
• Tenants in common → flexible ownership percentages

Where flexibility is needed for tax planning, tenants in common is often more suitable, as gains are taxed based on actual beneficial shares

4. Time the Sale Carefully

Timing can influence the amount of tax payable.

Consider:

• Whether to delay or accelerate a sale into a different tax year
• Your expected income levels in that year
• Availability of your annual exemption

In some cases, staggering disposals across multiple tax years can:

• Use multiple annual exemptions
• Keep gains within lower tax bands

5. Review Your Entire Portfolio, Not Just One Property

A common mistake is looking at each property in isolation.

Instead, consider:

• Gains and losses across the whole portfolio
• Whether any properties could be sold at a loss to offset gains
• The order in which disposals are made

Strategic planning across multiple properties can significantly reduce the overall CGT bill.

6. Watch for SDLT When Transferring Ownership

While transfers between spouses are usually CGT-free, Stamp Duty Land Tax (SDLT) can still arise.

This is particularly relevant where:

• There is an outstanding mortgage
• One party takes on part of that mortgage

In these cases, the assumed debt can count as consideration, potentially triggering SDLT

This is an area that should always be reviewed before making transfers.

7. Don’t Leave It Too Late

The most important point is timing.

Once contracts are exchanged:

• Ownership is effectively fixed
• Planning opportunities are lost

Ideally, planning should take place:

• Months before sale, not weeks
• Alongside legal and financial advice

Worked Example: Why Planning Matters

A couple owns a rental property with a large gain.

• Current split: 95% / 5%
• One spouse is a higher-rate taxpayer
• The other has unused basic rate band

By transferring a larger share before sale:

• More of the gain is taxed at lower rates
• Both annual exemptions are used
• The total CGT bill is reduced

As shown in the ICAEW example, even a modest restructuring can save thousands in tax

Conclusion

Capital Gains Tax on property can be substantial, but it is also one of the most planning-sensitive taxes.

With the right steps taken in advance, you can:

• Reduce the rate of tax applied
• Maximise available allowances
• Structure ownership more efficiently

However, these opportunities depend on acting early and considering the wider picture. Contact Merranti Accounting to discuss