Last time we talked about how to avoid getting caught out by Capital Gains Tax, and while we said you can’t avoid paying it, there are things you can do to reduce your tax bill.
We take a look at 10 easy strategies you should consider if you want to reduce your CGT liability.
1. Make the most of your CGT allowance
As we mentioned in the last blog, each individual gets a CGT allowance in the current tax year (2024/25) of £3,000. This means you won’t have to pay tax on any gain up to that threshold.
CGT does not roll over to the following tax year so make sure you use it.
2. Stagger when you sell your assets
As you only get £3,000 CGT allowance a year, give some thought to when you dispose of your assets. Staggering them over several tax years means you can take advantage of that yearly allowance and so end up paying less tax.
3. Transfer assets to your partner
Did you know transferring assets between spouses or civil partners are tax-free? This means if you gift some of your assets to your other half, you can in effect double your CGT allowance to £6,000.
Just bear in mind, transfers must be on an unconditional basis, and you’ll no longer be the legal owner of that asset. And unfortunately, this does not apply to unmarried couples.
4. Don’t forget about ISAs
Individual Savings Accounts (ISAs) are exempt from CGT, so if you are planning on investing any money, they are a good option. You can invest up to £20,000 a year and any gains you make will be completely tax-free.
5. Declare any losses
Whilst we all love to think we’ll have an Antiques Roadshow moment, and our valuables will be worth so much more than what we bought them for, this isn’t always the case. So, if you have sold something at a loss, remember to declare it, as it can be used to offset capital gains made elsewhere.
You can also carry losses forward from previous years, as long as you have reported them to HMRC within four years from the end of the tax year in which the asset was disposed of.
There are different rules for declaring losses, so please get in touch if you’re unsure about what you are doing.
6. Deduct your costs
Another way of reducing your CGT is to deduct any costs involved in the disposal of the asset. This includes estate agents’ fees, stamp duty, and renovation costs on property sales; and auction costs, sales commissions and restoration/repairs costs when you sell items such as furniture and jewellery.
7. Add to your pension pot
Making contributions to your pension can be a bit of a win-win strategy. Not only will it make sure you’ve got a bit more put aside for when you retire, but it could also reduce your taxable income, pushing you down into the lower tax bracket. This means you could end up paying 10% CGT for basic-rate taxpayers, rather than 20%.
This will depend on how much you earn and you also need to make sure you don’t go over the annual allowance for private pension contributions.
If you need any advice about how to make the most of your pension pot, please give us a call.
8. Invest in an Enterprise Investment Scheme
If you’ve always had a yearning to invest in start-ups, this might be the scheme for you. A government initiative aimed at helping small companies raise money to grow, it gives generous tax breaks, including CGT deferral relief to investors. In addition, if an investor holds EIS shares for at least three years, any capital gain on the shares will be tax-free.
Investing in EIS is high risk, so think carefully before committing.
9. Donate to charity
Anything given to charity is free of CGT. Not only will you be doing a bit of good, but it also stops the taxman getting a penny!
10. Try the Bed and ISA Strategy
This is one for the investors out there. You probably know keeping your investments in a general investment account means you’ll be subject to both income tax and CGT.
With this strategy, you simply sell your investments and then use the proceeds to repurchase them inside a Stocks and Shares ISA. It’s one simple transaction, so a lot cheaper than selling your investments, transferring your cash into an ISA and then repurchasing the shares. It also allows you to take advantage of unused ISA allowance and shelters future gains from CGT.
Hopefully, this will have given you some insight into how you can reduce your CGT bill.
If you do need any advice on any of the above strategies or have any other tax questions, please get in touch. We would love to hear from you.
