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When you dispose of an asset and make a gain, capital gains tax is normally payable. Some assets, for example personal possessions worth up to £6,000 each, such as paintings or jewellery are exempt, as is your car or your own home, but the majority of capital assets will incur capital gains tax (CGT) when sold at a profit.
The amount of CGT payable will depend on your overall income – if you are a basic rate taxpayer you will be liable at 18% and if you are a higher rate taxpayer, the rate is 28%. Bear in mind that when arriving at your level of income and hence you rate of tax, you need to include the gain itself (after deducting the annual CGT exemption).
If you sell a business or shares in a qualifying company and you qualify for entrepreneurs’ relief, the rate of CGT is reduced to 10%.
How can tax planning help to reduce your capital gains tax bill?
1. Ensure you qualify for entrepreneurs’ relief (ER)
If you own a business or shares in a company and believe you qualify for ER, make sure that both you and the business asset satisfy all of the qualifying criteria for a complete 12 month period prior to a disposal. This will avoid making a disposal and later finding you are not entitled to the relief.
2. Use your annual exemption
Every taxpayer is entitled to an annual CGT exemption, which is £10,900 for the 2013 / 2014 tax year. Where assets are owned jointly, the gain will be allocated between the owners with each being entitled to their own annual exemption. It is important to note that the CGT allowance cannot be carried forward and is lost if not used in the tax year.
3. Use an ISA to shelter savings or shares
If you sell shares in order to utilse your annual CGT exemption, you may consider purchasing them back within an ISA. Although there will be dealing charges to pay, this effectively moves assets into a CGT-free environment and as an ongoing tax planning strategy, has the potential for substantial CGT savings. It is possible to hold £11,520 worth of shares in an ISA.
4. Offset capital losses
If you own capital assets which are standing at a loss, the capital loss arising on sale can be offset against other capital gains of the same or future tax years.
5. Bed and spousing
‘Bed and breakfasting’ of shares is caught by anti avoidance legislation. If however you have sold shares in order to utilise your annual CGT allowance and the ISA route outlined above doesn’t appeal, consider arranging for your spouse or civil partner to re-purchase the shares at their current value. This offers an opportunity to use your annual CGT allowance to cover the initial gain and then shelter the asset, at a higher acquisition price, from further tax in the future.
6. Make a negligible value claim
If you own shares that are worthless, it may be possible to make a ‘negligible value’ claim and claim a capital loss based on the acquisition price.
7. Invest into SEIS or EIS companies
It is possible to shelter gains from CGT by reinvesting them into tax efficient companies. These enable an individual to invest a defined amount into a company and receive tax free gains in the future whilst ‘rolling over’ or entirely eliminating current gains.
For more information on tax planning to reduce capital gains tax, please contact Lesley Stalker by emailing las@rjp.co.uk.
I wanted to write and express our gratitude for your help and hard work in getting Probate through and settling all the taxes. I am so pleased that we selected RJP, as your professional help and updates throughout this process have been invaluable. If at any time in the future Probate assessment may be needed, you will be our first port of call. Once again, many thanks to the whole team.
Dan Cook, Probate clientI just wanted to drop you a short note to say how grateful I am for the support that RJP has provided over the past 4 weeks while our Financial Controller was away. I struggle to comprehend how much work your staff get through during their weekly visits and they are always a pleasure to have around the office.
I Evans, CFO, MoblicitiJust a quick e-mail from me to thank you for achieving the target for producing the draft accounts – it is very much appreciated and gives a first class impression of your firm. Many thanks.
J Stanfield, Chairman, BBS Actuaries LtdI would like to take this opportunity to thank you very much for the amazing job you have done navigating us through this whole process. My family and I also really appreciate the care and compassion demonstrated by you and your team in every dealing. Our thanks to everyone.
M Goldsmith, Probate ClientRJP provide our company with a complete service which takes the stress and strain away from the day to day running of our accounts! Their understanding of our business and their patience and advice is invaluable.
Outsourcing Client
If you sell a property and incur capital gains tax on the transaction, you will need to file a tax return and also pay any tax that is due within 60 days of completion, or penalties will arise. Need help with your property taxes? Talk to us.