Tips on how to save CGT by Howlader & Co.
Introduction
More money is collected by HM Revenue and Customs for Capital Gains Tax than for Inheritance Tax. With that in mind, make sure you are doing all the right things so that you do not hand over more than you should to the tax man.
Particularly as the end of the financial year approaches on 5 April, it is worth reviewing your finances and seeing if there is any way you could reduce the amount of CGT you owe.
What Actually is Capital Gains Tax?
CGT must be paid on any profit you make from selling, gifting or transferring an asset, providing your total taxable gains are above your annual CGT allowance.
The rate of CGT which you pay will depend on what level of tax you already pay and the amount of gains you have made.
HM Revenue and Customs (HMRC) states that higher or additional rate taxpayers will pay the higher rate of 28 per cent.
For basic rate taxpayers, rates would either be 18 per cent or 28 per cent, (or a combination of both), depending on the amounts of the gain and taxable income.
Nobody likes paying tax but here are a few ways in which you might be able to defer, reduce or even avoid paying CGT completely.
#1 Take Full Advantage of Your CGT Allowance
One of the best ways of keeping CGT liabilities down is by making the most of the tax allowances you are entitled to.
The Annual Exempt Amount, which currently stands at £11,100 per year, allows you to make gains of up to that amount, tax-free.
Make sure you take full advantage of this allowance because if it is not used one year, it cannot be rolled over to the next.
Ensuring you use your full tax allowance means you are reducing the risk of a larger CGT bill in the future.
#2 Do Not Forget Your Spouse’s Allowance
Don’t forget that practically everyone in the UK gets that £11,100 exempt allowance, including your spouse.
Transferring assets between spouses (who are living together) is not treated as a sales transaction so CGT is not normally triggered, and this can effectively double your CGT allowance as a couple.
The transaction must be effective though, which means you relinquish full control of your assets when turning them over to your spouse or civil partner.
#3 Try the “Bed and Spousing” Approach
A former way to lower your CGT bill meant you could sell shares which you had gained on and buy them back the same day.
This became known as “bed and breakfasting” but came to an end when a new time rule came in which effectively stopped investors from buying back assets within 30 days.
However a similar approach, which is allowed, once again makes use of your spouse. It is called “bed and spousing” and means you can sell an asset in order deliberately to realise a capital gain – below the CGT allowance – which your partner then buys back on their own account.
This is perfectly legal and is a popular way of keeping an asset in the family, while lowering the eventual gain.
#4 Offset your Losses
It is worth remembering that CGT is the total of all your capital gains, minus any losses you might have made.
This means if you sold a taxable asset for less then you paid for it, you could offset the loss against your successful investments.
This might mean selling shares, which you know are no longer worth what you paid for them, before your CGT bill crystallises.
#5 Open a Pension or ISA
You can put up to £15,240 into an ISA, which can be made up of a combination of cash or stocks and shares.
Any gains which are made while invested into an ISA are CGT free. When it comes to pension contributions, making additional payments means you can reduce the amount of your earned income and gains which are liable to higher rates of tax.
About The Author
Founded in 1968, Howlader and Co are an award-winning firm of chartered accountants and tax advisors whose friendly, fast and reliable service has earned them numerous plaudits and most recently a place among the top 20 accountancy firms in London. Working with all types of businesses and individuals, Howlader and Co would love to see how they can help you.
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When you make a profit on a valuable item or asset in accountancy terms this is called a 'Capital Gain. There is a non-wasting Chattel worth over £6,000<br /> I found it valuable.<br /> http://www.churchill-knight.co.uk/blog/2014/04/capital-gains-tax-when-do-you-pay-it/
When the expenses scandal hit the headlines back in 2006, MPs were under the spotlight for swindling the system by switching their homes (main and second homes) to avoid paying the Capital Gains tax. It’s, therefore, important that an owner of a second home can prove that he or she does not live there more than their main residence. If you spend more time in a second home, your primary family home could soon be charged Capital Gains Tax if you decide to sell it. Following a government consultation this week, HMRC could assess where the house seller spends the most time, as of April 2015.