Avoid Capital Gains Tax
Capital gains tax, or CGT as it is called for short, is payable on the increase in the value of an asset when it is sold or “disposed of” (e.g. if you give it away).
This is often shares, or share based investments, but also second properties have been quite common. It could also be things like jewellry, coins, stamps, paintings and antiques.
It is based on the increase in the value of the asset, not how much you receive. So, if you buy (or are gifted) £10,000 worth of shares and they grow to £50,000 you would have a capital gain of £40,000, if you sold them.
See more on: Capital Gains Tax: what you pay it on, rates and allowances: GOV.UK
How does the tax work?
- £6,000 is exempt from CGT
- Married couples can collectively claim £12,000 worth of exemption
- Expenses from the asset can be deducted – such as repairs
- Then, the gain left over is added to your income and taxed.
- The amount of tax depends on your other income and the type of asset (property is taxed at a higher rate than other assets)
Capital Gains Tax can be very complicated – call us on 01793 686393 today to discuss your tax saving goals with one of our advisers
Avoiding capital gains tax
Using partner’s allowance
A husband and wife, (or those in a civil partnership), could reduce CGT by sharing the asset.
So, a husband could gift his wife half of his shares. Then upon sale both would be able to use their £12,000 exemption. (Maybe even gift more to the lower earner too.)
Staggered sale
With investments like shares it would also be possible to sell shares over a period of time. So, rather than sell an entire portfolio in one go, you could sell half of it over two tax years (or even more).
Remember it is per tax year, so you could sell half in March and the remaining half only days later (after April 6th).
For property this is of course more difficult, if not impossible. It is just one asset and as such cannot be divided.
Enterprise Investment Scheme (EIS)
However, the gain from a house sale could be delayed by using an EIS. Investing in an EIS delays the tax charge, and converts it in to shares, giving the future option of a staggered sale and a CGT tax rate based on shares.
It is possible to use an EIS to defer or possibly avoid capital gains, and this is often an option if you have sold a second property that has incurred a capital gains tax liability.
See EIS and buy to let and capital gains for more details.
If you have a question about reducing capital gains tax or want advice, or just want to have a chat about it with a UK regulated Independent Financial Adviser, then phone now on 01793 686393 or contact us online.