A magnetic read element having an additional magnetic layer, “a floating magnetic shield”, formed as a part of a capping structure of a magnetoresistive element. The capping structure is formed over the magnetic free layer and includes a magnetic layer that is located between first and second non-magnetic layers. The magnetic layer can advantageously be formed with a high magnetic permeability for increased signal amplitude and increased signal resolution. In addition, because the magnetic layer of the capping layer structure acts as a magnetic shield, it can reduce effective magnetic gap spacing for increased signal resolution.