6 Ways to Pay less Capital Gains Tax
Capital Gains Tax is due on the difference between the price you pay for something and the price you ultimately sell it for. This includes almost all assets including property which isn’t your main dwelling, antiques, shares and a range of other items.
If you want to minimise the amount of Capital Gains Tax you need to pay, one of the most effective approaches you can take is to plan well in advance and look to take on-board some expert tax advice which can help you make substantial savings.
How Much Do I Need to Pay?
The exact figure you need to pay for Capital Gains Tax is calculated on the increase in the value of the item you have sold in conjunction with your taxable income. To ensure you are calculating this figure correctly head over to Gov.uk where you can find out whether any money is due and if so how to calculate it.
That said, with some careful forethought, it is possible to minimise the Capital Gains Tax you owe and here we will look at six possibilities.
- Use Your Allowance Wisely
The first thing to understand is that almost every individual liable to pay Capital Gains Tax will be in line for the Annual Exempt Amount. For the year 2016 to 2017, this is £11,100 and is basically an annual tax-free allowance for Capital Gains. Therefore, one of the best ways to make savings is to plan when you will sell your assets. For example, if your allowance for one year has almost been maxed out, defer the sale of further assets until the following tax year. It is important to note that this annual exemption cannot be carried forward so the best use possible of it within the tax year should always be made.
- Make Use of Losses
While no-one wants to experience a capital loss, it can be used against future gains, thus minimising the impact. If you want to claim relief on a capital loss, it must be declared within four years of the end of the tax year in which it occurred. A benefit is that once this has happened you can then carry forward this claimed loss indefinitely.
- Live in Any Property You Let
If you let part or the whole of your home, you will be liable to pay capital gains tax on a proportion of any gain – which related to the letting – when you sell it.
One way to minimise this is by living in the property and using it as your main residence for at least part of the time you own it. This will mean you can then claim tax relief for the time the property was your home, and during the final 18 months of ownership.
- Exploit Your Partner’s Annual Exemption
Each partner in a marriage or civil partnership is entitled to their own annual exemption amount. Therefore, another way to minimise capital gains tax is to transfer ownership of an asset to your spouse or civil partner. Again, planning is important as the transfer should happen well in advance of any move towards a sale of the asset being made. In addition, it must be stated in any documentation that the transfer is unconditional and absolute.
- Make the Most of a Downturn in Assets
If one of your assets, such as shares, becomes worthless while you own them one way to minimise the hit is to make a negligible value claim. For Capital Gains purposes, this is deemed as a loss and therefore will arise in the tax year in which you declare this negligible value claim. This can also mean that on occasion, the two previous tax years can also be taken into account. For this to happen, HMRC would need to be satisfied that the asset held a negligible value in the two years preceding your claim.
- Utilise ‘Bed and Spouse’
This is another Capital Gains Tax approach which can be used between married couples or civil partners. In this method, one partner, who has not used all their capital gains allowance, can sell their shares and therefore not be liable for tax as they are still under the exemption limit. The following day their partner can buy back the same shares, keeping the security with the partnership’s portfolio.