Do you know what capital gains tax is? Capital gains tax is the tax you pay on the profit you make when you sell an asset that is increased in value. Below are seven ways you can reduce your capital gains tax bill.
1. Tax-free allowance
One way to help reduce your capital gains tax bill is to make sure you use up your tax-free allowance every year. This means you only pay capital gains tax on your overall gains above your tax-free threshold which is currently £12,300 and £6,150 for trusts.
2. Crystallise losses
Another solution is to ‘crystallise losses’ in shares and funds that may have decreased in value as capital losses. These can be carried forward and set against future gains. For example, a gain of £25,000 minus a loss of £10,000 is a net gain of £15,000. By crystallising any losses in the same tax year, you can help to reduce your tax bill.
3. Maximise your pension
One smart way is to maximise your pension contributions. By contributing towards your pension it will provide income tax relief at the marginal rate and with the right advice and planning, you can help to increase your higher rate threshold which means the tax on any capital gains is limited to a maximum of 18 per cent.
4. Share option scheme
If your current place of work has a share option scheme or incentive plans these do not attract income tax or national insurance and are worth considering. Be mindful that depending on how well the shares perform it can trigger a capital gains tax liability.
5. Venture capital trusts
Did you know that investment in a venture capital trust will provide you with 30 per cent income tax relief up to a maximum investment of £200,000 per year? For you to receive this tax break you need to retain the VCT for at least five years – any gains when they sell are tax-free.
6. Partner’s CGT exemption
Another way to help reduce your capital gains tax bill is to use your partner’s capital gains tax exemption. By moving assets between you and your partner, it will not incur a tax charge, so it would seem a sensible solution to make the most of this benefit, especially when one person in the couple is a higher-rate taxpayer.
7. ISA allowance
Finally, there is your ISA allowance which many people still do not take advantage of. The current allowance is £20,000 and all personal capital gains are tax-free on ISA investments. It might be worth speaking to a financial advisor who can help make sure you make the most of your ISA allowance.
If you need help reducing your capital gains tax bill then speak to the team at The Stan Lee. Their tailored services include advice on capital gains tax payment, consulting on which assets are exempt from capital gains tax and finding the relevant opportunities to save your tax including available tax reliefs.