8 ways to reduce your capital gains tax
In this article you’ll learn:
- What capital gains tax is and when you need to pay it
- 8 way to reduce capital gains tax
The UK government asks that everyone pays a tax when they sell (or ‘dispose’) of assets that have increased in value by more than their annual allowance. These could include stocks and shares, property and works of art. This tax is known as capital gains tax. It’s important to note that capital gains tax is only due on the profit – the money you make minus the original cost.
The sale of some assets are free from tax and everybody has a tax-free annual allowance.
When do you pay capital gains tax?
You pay capital gains tax on profit when you sell:
- items worth £6,000 or more (but not your car)
- any property you own other than your primary home
- your primary home if you’ve ever used it for business or let it out
- shares that aren’t in an ISA or PEP
- business assets
Here’s our 8 tips for reducing capital gains tax:
- Understand your tax-free allowance
The first £11,100 per person, per tax year of gains are tax-free.
- Use the tax year to your advantage
As the £11,100 tax-free allowance only applies to each tax year, splitting asset sales across different tax years (for example, selling one batch of shares in March and another batch in late April) can reduce the amount of tax you need to pay..
- …use the same approach to keep your rate lower
If you are a basic rate income tax payer, splitting the sale of assets over two tax years could also bring down the your capital gains tax rate from 28% to 18%.
- Transfer your money into an ISA
Individual savings accounts (ISAs) are a great way to save money and avoid paying tax. For the tax year 2016/17, you can invest as much as £15,240 and not pay a penny of it to the taxman. What’s more, the limit will increase to £20,000 for the 2017/2018 tax year.
- Spread your assets between you and your spouse
As the tax-free personal allowance for capital gains is £11,100 per person, spreading ownership between you and your spouse effectively doubles the tax-free allowance to £22,200 per tax year.
- Don’t forget your losses
You can offset your losses (such as costs incurred maintaining a property or money lost on shares) against your sale profit, potentially reducing the taxable amount.
- Sell your shares first
From 6 April 2016 the rate of capital gains paid on the sale of shares or investments was reduced from 28% to 20% for higher rate tax-payers and from 18% to 10% for basic rate tax-payers. It might be worth selling shares ahead of any other assets.
- Pick up a pension
Gains made on personal pensions and including self invested personal pensions (SIPPs) – are tax-free, making them an efficient way of investing for the long term without ending up owing the government capital gains tax.
Are you looking for more capital gains tax advice, ways of reducing capital gains tax on property or simply looking for the best way to invest your money? Get expert financial insight: contact Flying Colours today on 0333 241 9900.