Accounts Navigator

Capital Gains Tax (CGT) is a tax that is levied on the profit that you make when you sell assets, such as property or stocks, for more than you paid for them. In the United Kingdom, CGT is a form of indirect tax that is levied on the difference between the sale price of an asset and its original cost.

While CGT is an unavoidable tax for many people, there are several strategies that you can use to reduce the amount of CGT that you have to pay. Here are five ways to reduce capital gains tax:

Use your CGT allowance: Every tax year, you have a CGT allowance of £12,300. This means that you can sell assets for up to this amount without having to pay any CGT.

The strategy of spreading gains involves dividing the sale of an asset across several years to utilise multiple annual Capital Gains Tax (CGT) allowances. This technique may not be feasible for most tangible assets as they cannot be divided, but the sale of investments can be spread over multiple tax years to minimise CGT liability. By carefully planning the sale and distributing it across two or more CGT allowances, you can maximise the annual allowance to which you are entitled.

Make use of tax-free investments: Some types of investments, such as ISAs and pensions, are exempt from CGT. By investing in these types of products, you can reduce the amount of CGT that you have to pay.

Make use of business tax reliefs: If you are a business owner, there are several tax reliefs that you can use to reduce your CGT liability. For example, you may be eligible for Entrepreneurs’ Relief, which allows you to pay a reduced rate of 10% on the first £1 million of your capital gains.

Gift assets to your spouse or civil partner: If you gift an asset to your spouse or civil partner, there is no CGT due on the transfer. This can be an effective way to reduce your CGT liability, especially if your spouse or civil partner has a lower tax rate.

In conclusion, while CGT is an unavoidable tax for many people, there are several strategies that you can use to reduce the amount of CGT that you have to pay. By holding assets for more than one year, using your CGT allowance, making use of tax-free investments, taking advantage of business tax reliefs, and gifting assets to your spouse or civil partner, you can reduce your CGT liability and keep more of your hard-earned profits.

This article is copyright © 2023