Simply put Capital Gains Tax is a tax by HMRC on the profit you make when you 'dispose' of something of physical presence and value (an asset) eg a rental property, stocks and shares or a piece of art.
Eg you sell a piece of buy-to-let property for £300,000. Which you bought it for £200,000. Equals a capital gain of £100,000. A lot of people think it is only applicable in the case of a sale but according to HMRC it is applicable in other actions such as giving it away as a gift, transferring it to someone else, swapping for something else and getting compensation eg Insurance payment if it is damaged or stolen. Certain types of assets are eligible for capital gains tax while others are not. Your primary residence ie your home is not eligible for capital gains while a second property is. Some of the things on which you may need to pay Capital Gains Tax on are as follows:
But please note that depending on actual type of asset, you may be able to reduce any capital gains tax due by claiming a relief's that are available. There are many different types of reliefs and it usually best to visit a reputable accountant like Tax Affinity Accountants to make sure you take advantage of all the reliefs available to you. To help you HMRC has given everyone a tax free allowance after which capital gains tax will apply. Currently this is £11,100 for a Person and £5550 for a Trust for the 2015-16 Tax Year. Eg If your personal gain is £12,000 then deducting your personal allowance of £11,100 from the gain leaves you £900 on which capital gains tax can be charged. If you have any overseas assets then you may still have to pay Capital Gains Tax. There are however special rules if you are a British citizen or UK resident and are not domiciled in the UK whereby you can claim the ‘remittance basis’. If you living abroad then unfortunately you still have to pay tax on any gain you make on a residential property that is in the UK. This is even if you are declared as non-resident to HMRC. But the good news is that you do not have to pay Capital Gains Tax on any other UK assets, eg stocks and shares in UK companies, piece of art and business assets etc unless you return within 5 tax years of the gain. As capital gains tax rates can be either 18% or 28% of the gain depending on your personal income, it is a really good advice to speak to a qualified accountant as a good accountant should save you much more money than he/she would ever charge. At Tax Affinity Accountants we are one of the most recommended experts in Capital Gains Tax, due to our detailed knowledge of tax reliefs available and of the HMRC tax system. By Anni Khan at Tax Affinity Accountants. Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they provide a bespoke service to client’s right across the UK and are considered in the industry to be experts in capital gains tax advice. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends.
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Importance of Submitting Personal Tax Returns to HMRC before 31 Jan Deadline The UK tax year starts on the 6th of April every year and finishes on the 5th of April the following year e.g. the tax year for 2013-14 would have started 6th April 2013 and finished on April 5th 2014. Under current legislation, if you are a self employed sole-trader, partner in a business partnership, a company director or earn above £100,000 per annum then you will be required to submit a tax return to HMRC; unless you work for a non profit organisation in which you don’t receive pay or benefits e.g. travel expenses or company cars. If you are not sure of your situation then you should contact HMRC for further clarification. The Deadlines: There are three main deadlines to follow:
The Penalties There are a few penalties and interest charges that with be applied if your tax returns are not received by the deadlines noted. If the final deadlines to file your tax returns are not met then you will get an initial fine from HMRC of £100. If there is continued failure to meet the deadlines then the following fines will be placed.
Also penalties can be issued for incorrect tax returns:
As each person’s situation is different and the tax rules and regulations regarding tax free allowances, income tax, inheritance tax, capital gains tax on property, stock and shares etc can be quite complicated. Therefore it is highly recommended that everyone should seek the help and support of an experienced and qualified accountant or tax advisor. A s a reputable firm of accountants such as Tax Affinity Accountants will usually save you far more money in saved taxes through their tax planning than they will ever charge. Leaving you more time and money to concentrate on your business. By Mohammad Khan at Tax Affinity Accountants. As experts in property tax we often get asked by clients who are landlords and property developers how to save tax - especially so as the cost of letting a property rises year on year.
With our experience and special insider knowledge that HMRC in 2014 - 2015 is especially looking at checking landlords who are not declaring the correct rental income and correct capital gains on second homes. This is something that is becoming more important as people realise it is harder and harder to hide their untaxed property incomes. Landlords or their accountants are required to fill the the land and property section on their self assessment tax return showing all the rental business income they have made and as many want to make sure they pay the least amount of tax possible. We have have created a simple list to help guide you. Here are Tax Affinity Accountants top tips to save property tax. 1. Claim for all your property related expenses. Its important to make sure you claim for all your expenses when submitting your tax return. These should include: • Travel costs incurred when travelling back-and-to the investment property • Estate Agent or private advertisement costs • Mobile or landline telephone calls made (or text messages sent) in connection with the rental property • Payments for safety certificates eg Gas Safety • Bank charges (i.e. overdraft, interest on mortgage) • Professional fees e.g. Architect, Solicitor, Accountant etc • Monthly payments to property investment related products and services eg Insurances etc 2. Dividing your rental income between partners. A top tip is to consider putting your buy-to-let property into joint named ownership. Then the total income can be divided into each person's income and multiplying the personal allowance claimable on the income. 3. Claim all empty period expenses. Often there are periods between lettings that the buy-to-let property is empty and the owner has to pay for council tax or utlity bills. These should be noted and claimed. 4. Claiming the home office allowance. £4 per week (ie £208 per year) can be claimed for the use of your home to manage and run your rental property income. This amount can be claimed without evidence and more can be claimed if it can be justified. 5. Interest and finance costs. Most properties are on mortgages and the interest part of any mortgage is claimable as an expense. So if you have an interest only mortgage then the whole amount is claimable per month paid. Often landlords also forget to claim for money borrowed from friends or family or taken on a credit card or personal loan for the buy-to-let property and the interest on these can also be claimed. The principal can only be claimed when selling the property against capital gains tax. 6. Dont forget to carrying forward loss from previous year Most of the time a new buy-to-let property will not breakeven in its first year and so many landlords have significant rental losses for that year. Then when they start to make income from the property most forget about this loss which can be offset against the current years income. This could even mean no tax to pay in the current year if the losses are great enough. This requires detailed technical knowledge and so any lanldord in this situation should contact an experienced accountant such as Tax Affinity Accoutants. 7. Capital gains avoidance If landlords who are planning to sell their property, need to plan months or even a year ahead to increase their options of minimising capital gains tax which will arise on the sale of the property. This is usually best done getting expert advice from an accountant experienced in tax and property such as Tax Affinity Accountants. What top property developers and landlords know that mostly the fees paid to a good accountant are far less in comparison than the tax he/she will save you. 8. Wear and tear allowance Letting your property as furnished as opposed to unfurnished can allow you to claim up to 10% of the gross income as a valid expense for the upkeep and repair of furtniture in the tax year. 9. Make Sure to avoid HMRC interest and penalties Sound obvious but far to often, we see penalties and interest charges for late filing of tax returns and missed deadlines for documents to HMRC. The deadline for a paper return to HMRC is 31st Oct and online 31st Jan each year. Please also not that landlords will not be able to submit their return electronically if there are any capital gains elements on the return. ie the sale of any property. An experienced accountant needs to be contacted for this purpose which if knowledgable enough could ensure all capital expenditure is claimed to reduce the capital gains liability as low as possible. By Andrew at Tax Affinity Accountants. Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered to be property tax experts helping and supporting ladlords across the UK. They regularly help new landlords and property developers and provide valuable ongoing support. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. How do you save money on Capital Gains Tax? For an Accountant this is a question which is asked regularly. But as you can always find a way to save money. Below I give you a basic insight into how CGT (Capital Gains Tax) works, some tips, exceptions and how to avoid it completely:
How does it work? CGT is run through the tax year (6th April one year to 5th of April the following year). It is worked out on the total of your taxable profit from any capital assets that you hold. For instance, property, bonds and shares on the stock exchange. Furthermore, it is when the amount exceeds the purchase price of a property, bond and shares/stock. The amount that is exempt (tax free) annually is £10,900 for 2013 to 2014 (which increases to £11,000 for 2014 to 2015). At present there are two different types of CGT. The basic rate taxpayers pay is 18%, although the higher rate tax payers pay is 28% and if the capital gains goes over your threshold you will pay the higher tax. Tips to save money Below are some tips to keep the CGT Low as possible:
Exceptions Any profit made on selling your home is tax exempt, unless you did one of the options below:
You can also get away with not paying tax if you make a profit on selling a car, ISA’s, Peps, UK government gifts, savings certificate, premium bonds, personal belongings that are worth £6,000 or less when you come around to selling them. Furthermore there is a 10% tax rate with the entrepreneur’s allowance, which is aimed to help people that are selling their businesses they have built up. It has a lifetime limit of £5m. Avoid it completely If you want to avoid paying the higher threshold of 28% there are some suggestions below:
You can defer your CGT by reinvesting it into the Enterprise Investment Scheme (EIS). You would have a limit of £200,000. Furthermore, any profit made will be exempt if you meet the qualifying standards. Finally, while tax avoidance is legal, tax evasion is illegal. So do not be tempted to sell assets without declaring any profit to HMRC. Defrauding the tax man can land you with a large fine or even a prison sentence. But the advice and support of an experienced tax accountant and some sound forward tax planning can save you thousands of pounds. By Tahir Malik at Tax Affinity Accountants Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered in the Finance Industry to be the experts in all types of Tax including Capital Gains Tax. Helping and supporting businesses and individuals throughout the UK, they regularly help people with their CGT tax issues. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. BUDGET 2014 HIGHLIGHTS
PERSONAL ALLOWANCE The personal allowance is the amount of income you can receive each year without having to pay tax on it. This amount is to increase to £10,000 for 2014/15 and to £10,500 for 2015/16. The basic rate taxpayer will see a saving of about £112 in 2014-15 and a further £100 in 2015-16 on their annual income tax bill. HIGHER RATE TAX PAYERS The threshold for which individuals pay tax at the higher rate of 40% will increase by 1% for both tax years. ANNUAL INVESTMENT ALLOWANCE For businesses, the annual investment allowance will increase from £250,000 to £500,000 until 31 December 2015. HIGHER ANNUAL SUBSCRIPTION LIMIT FOR INDIVIDUAL SAVINGS ACCOUNTS FROM 1 JULY 2014 The chancellor has announced big changes to the Individual Savings Accounts (ISA). The new policy means that, from July onwards, it will be possible to save up to £15,000 in total. Furthermore, the whole sum could be in cash unlike before where only half of the limit could be saved in cash and the rest in shares. Also, the 10p tax rate for savers will be abolished. CLASS 2 NIC From April 2016, Class 2 National Insurance Contributions (NIC) will be collected through self-assessment. CHILD-CARE HELP Parents paying 80% of childcare costs of up to £10,000 per child, aged up to 12, to a registered provider will get the remaining 20% tax-free from September 2015. NEW TRANSFERABLE TAX ALLOWANCE From April 2015, there will be an introduction to a new transferable tax allowance for married couples and civil partners. PENSION CHANGES All tax restrictions on pensioners' access to their pension pots to be removed, ending the requirement to buy an annuity. The taxable part of pension pot taken as cash on retirement to be charged at normal income tax rate, down from 55%. There is an increase in total pension savings people can take as a lump sum to £30,000 By Wilson Law at Tax Affinity Accountants Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered to be small business experts helping and supporting business in the UK. They regularly help new business start up and provide valuable support for new businesses. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Properties have always been a relatively safe and sound option for investment. As a landlord, renting out your property can offer an alternative source of income in the form of rent and potentially give a good return on the initial investment through capital appreciation. However, if you’re looking for huge returns over a few days then property investment is unlikely to be your preferred choice. Nonetheless properties have historically been a low risk investment and have provided modest returns over the long term. Here are a few things to consider if you wish to maximise your rental income:
Deducting Allowable Expenses You can reduce the amount of rental income that is taxable by taking advantage deducting allowable expenses. There more common expenses you can deduct are:
The costs should be wholly and exclusively incurred as a result of renting out the property. If a part of the expense meets this condition then that part can be deducted from income. Cost comparisons Saving costs can only have a positive effect as expenses are the only thing eating into your rental income. Try reviewing your costs on an occasional basis (once a quarter) and you may witness bargains that could help you save a lot of money. Service providers tend to offer sizeable discounts to new customers but only have stagnant prices for existing customers. Getting quotes from different companies that offer the same service can sometimes amaze you at how wide the price range can be. Just be sure you don’t jeopardise the quality of services just to save a few pennies. Annual Investment Allowance Expenses of a capital nature are not deductible. You cannot deduct from income the cost of the property you are renting out, expenditure that adds to or improves the property or the cost of renovating a property from a state that cannot be rented out. However, capital spending can be deducted using the Annual Investment Allowance. From 1st January 2013 (until 1st January 2015), you can deduct up to £250,000 a year for many types of capital spending using the Annual Investment Allowance, such as commercial vehicles, business furniture, computers, machinery and tools. It would be beneficial to take advantage of the temporary rise in the Annual Investment Allowance as it is likely to revert back to around the limit of 2012/13 (£25,000) after January 2015. Landlord’s Energy Savings Allowance (LESA) Until April 2015, an allowance of up to £1,500 per let residential property can be claimed for the cost of loft, wall and floor insulation, draft proofing and hot water system insulation. The LESA was introduced to encourage landlords to improve the energy efficiency of let residential properties. These expenditures are usually not deductible from taxable income and are not eligible for capital allowances. Wear and Tear Allowance or Renewals Allowance For fully furnished properties, a wear and tear allowance can be claimed for furnishings such as beds, carpets and appliances. The allowance is 10% of the net rental income (gross rent minus utility bills, service charges and council tax) you receive from these properties. With the renewals allowance, you can claim expenses of any furniture as you replace them. Any money you make from the disposal of the asset must be deducted and the cost of any improvements (e.g. an upgrade from a washing machine to a washer-dryer) Note that you can only claim either the Wear and Tear Allowance or the Renewals Allowance but not both. By Wilson Law at Tax Affinity. Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Tips for Efficient Savings and Investments There are a range of methods for saving and investing your money more effectively. Summarised below are several straightforward ways to obtain tax-free returns and reduce your tax bill. National Savings and Investments National Savings and Investments are backed by the Treasury and thus offer a secure method of saving and investing your money. The tax free savings and investments products currently offered from National Savings and Investments include:
Tax-Free Interest on Savings Interest from your savings in banks and building societies is usually taxed at 20%, but you may be able to register to receive gross (untaxed) interest if your taxable income is within your tax-free allowance. You can also claim back tax paid unnecessarily on savings in the past. ISAs (Individual Savings Accounts) An ISA is a financial product, introduced in the UK in 1999, to allow tax-favoured savings and investment accounts. They can be used to save cash (Cash ISA) or to invest (Stocks and Shares ISA). One can invest a maximum of £11,520 into an ISA in the tax year 2013-14, of which £5,760 may be saved in cash. The remaining sum may be invested in a range of financial products:
No tax is paid on the interest or dividends received from an ISA and profits from investments are exempt from Capital Gains Tax. Junior ISAs Similar to standard ISAs, Junior ISAs offer tax free savings for any child under the age of 18, providing they are not eligible for a Child Trust Fund (CTF) account. The upper limit for a tax free Junior ISA in 2013-14 is £3,720, and once again there is no tax on interest or dividends. However, as with CTFs, the money is locked into the ISA until the child is 18. Child Trust Funds Only eligible for children born between 1st September 2002 and 2nd January 2011, CTF accounts can be paid into by parents, family and friends up to a limit of £3,720 tax free for 2013-14. Once again, the money in the CTF account cannot be accessed until the child is 18 years old. Pension Contributions Taxpayers are encouraged by the government to make contributions to pension schemes by offering tax relief on any such payments. Once you retire, you will ordinarily be able to claim 25% of you pension fund as a tax-free lump sum, and then your pension will be taxed in line with standard income tax rates. Savings in pension schemes are unlimited up to 100% of your earnings each tax year and thus offer an effective method for reducing your tax bill. By Tom Hoadley. To read more interesting and informative articles by this and other writers visit www.taxaffinity.com/blog. Tax Affinity Accountants are experts in Tax and Accountancy for small businesses and help business across the UK and those abroad that have an interest in the UK. Visit www.taxaffinity.com for more details. Please feel free to comment and share this with your friends. Buy-to-let properties have attracted thousands of investors. But before you take the plunge, it's important to consider the tax implications.
Taxes on buy-to-let properties: Britain's landlords are required to pay tax on rent and capital gains tax, but there are ways to minimise this. Rental Income Rent income will be treated as income and taxed in line with your basic or higher-rate tax bands. You can, however, be able to offset mortgage interest payments, letting agency costs and maintenance expenses against the taxable rental income. This can make it more tax-efficient to have a mortgage on your investment property rather than your main home where you can no longer get tax relief on your mortgage. Rental incomes should be declared on an annual self-assessment tax return, it may be worth seeking an accountant to ensure all tax breaks are taken advantage of. Tax on the property price rise Capital Gains Tax (CGT) comes in when you sell a buy-to-let property at a profit. From April 2008, capital gains tax was changed to a flat rate of 18%. Any gains above the annaul £10,100 (2009/20) personal threshold will attract CGT. Before CGT as charged at up to 40% and taper relief cut this, if a property had been owned for more than three years. This no longer applies. Capital gains tax applies to any property which is not your main home, known as the Principal Private Residence. If you only have one property and it is considered your PPR, then you do not have to pay CGT, however, the taxman may want evidence that you were actually living there. CGT liabilities should be declared annually on your tax return and anyone making a substantial sum from selling a property should seek out a good accountant, who can take advantage of all available breaks. Stamp duties Stamp duty tax is payable on buy-to-let properties by the purchaser, as all other residential properties. The current rates are 1% above £125,000, 3% above £250,000 and 4% above £500,000. A stamp duty holiday currently applies until the end of the year on all properties under £175,000. Decreasing tax Most people think that one way to dodge tax - and are often advised by accountants - is to put a second home in the name of their partner. When they come to sell, they claim their partner has been living in the property thereby making it exempt from CGT. This choice is easier for people who have done let-to-buy: they keep the mortgage on the first home which they lived in - and then take a second traditional mortgage with another lender on an additional home where they live. In this way you can bypass the need for a proper buy-to-let mortgage on the first property, which would alert the taxman. However, it breaches the lender's rules, which means they could call in the loan without notice. More importantly, evading CGT in this way would be treated as illegal and result in fines or even imprisonment. However, there are more complicated ways of mitigating tax on buy-to-let, including setting up a company to own the properties. For the average amateur investor this is not worthwhile as it is expensive, complicated and can limit access to mortgage finance. Cutting down on capital gains tax Typically, buy-to-let owners and those with second homes can slash tax bills if they have ever lived there as their principal private residence and through lettings relief And everyone's main home - or principal private residence as the taxman catchily names it - is exempt from capital gains tax when sold, but any other properties they own attract CGT at their highest rate when sold. For example - an unmarried couple may each own a home that qualifies as their principal residence but a married couple may only nominate one property and must elect jointly. And it is possible to cut capital gains bills by living in the second property for a period of time. Special rules apply to properties that have been a main residence. The period when it was the main residence is exempt, plus the last 36 months of ownership. As for those who have previously rented out their main residences there is the added benefit of being able to claim up to £40,000 letting relief. This is available to anyone with a share in the property - giving a couple, even if married, up to £80,000 between them. Finally, the amount of private letting relief that can be claimed cannot be greater than £40,000 and must be the lower of that sum, the amount of principal private residence relief being claimed, or the capital gains made during the letting period. The best advice however that the wisest of investors make sure to have is to use a clever tax accountant to handle your affairs. The tax saved will be much greater than the fees they will ever charge. Tax Affinity Accountants based in Kingston Upon Thames, are experts in tax and accounting. Visit www.taxaffinity.com for more interesting articles. Please feel free to comment and share this article with your friends. Still wondering about what the key things to come out of the Chancellor's budget were for you and your business? - Well read on...
Income tax The threshold at which people start paying income tax is to be raised to £10,000 in 2014 - a year early - an increase in the threshold of £560. State of the nation The Office for Budget Responsibility (OBR) has forecast growth of 0.6% this year, half of what it said it would be in December. But the OBR predicts the UK will escape recession this year. After that, growth is predicted to be 1.8% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017. Home-hunters Home buyers wishing to buy a new home worth less than £600,000 are to be given assistance. As long as they have a 5% deposit, the government will stump up an extra 20% - repayable when the house is sold. Help for business Chancellor George Osborne announced that corporation tax will be cut by 1% to 20% in April 2015. This, Osborne said, will make the UK's corporation tax the lowest of any major economy in the world. The UK, he added, is "open for business". Elsewhere, the Chancellor said some 450,000 small firms will pay no employer National Insurance. Osborne also said stamp duty on AIM shares will be abolished from next April, in a move which he said will benefit hundreds of small business in the UK. The government will give capital gains tax (CGT) relief on sales of businesses to their employees. Youngsters The government confirmed it will consult on options for transferring savings held in child trust funds (CTFs) into Junior ISAs. The move will offer a lifeline to six million children. Junior ISAs were introduced in November 2011 as an attempt to encourage saving for children, following on from the abolition of CTFs at the beginning of that year. Tax avoidance The Isle of Man, Guernsey and Jersey are to enter tax information exchanges with the UK that will significantly increase the amount of information automatically exchanged on potentially taxable income, in order to identify and tackle evasion. The move aims to recoup £3bn in unpaid taxes. Additionally, the government will remove the presumption of self- employment for limited liability partnership (LLP) partners, to tackle the disguising of employment relationships through LLPs and counter the artificial allocation of profits to partners (in both LLPs and other partnerships) to achieve a tax advantage. The measures, the government forecasts, will in total raise over £4.6bn in new revenue over the next five years. Pensioners As previously announced, the single flat-rate pension of £144 a week is to be brought forward a year to 2016. This will end contracting out of the State Second Pension, so that everyone will pay the same rate of national insurance contributions and build up access to the same single-tier State Pension Cap on social care costs confirmed at £72,000. The government has also pledged to make £5,000 ex-gratia payments to Equitable Life policyholders who were too old to be eligible for compensation payouts. The government is not obliged to do it, Osborne pointedly said, but it is "the right thing to do". Borrowing Borrowing will be £114bn this year and is set to fall to £108bn, £97bn and £87bn in following years. The deficit has been cut by a third since May 2010. Borrowing as share of GDP is to fall from 7.4% in 2013-14 to 5% in 2015-16. Debt as a share of GDP will increase from 75.9% in 2012-13 to 85.1% in 2015-16. Inflation The 2% Bank of England target is to stay in place, the Chancellor said, though its remit is to be changed to focus on growth as well as inflation. Tax Affinity Accountants are experts in Tax and Accountancy in the borough of Kingston upon Thames. Please feel free to comment or share this article with your friends. For more information visit www.taxaffinity.com. And follow us on twitter to find more tax saving tips @tax_affinity The Treasury expects to raise over £4 billion from Capital Gains Tax (CGT) from the last tax year - 15% more than the previous year. In our view the main reason for this rise is the number of investors paying CGT at a higher rate has increased.
CGT is payable at 18% if you're a non-taxpayer or basic rate taxpayer, or 28% if you're a higher or additional rate taxpayer. Remember, CGT is payable when you realise profits in excess of the annual allowance (£10,600 in the current tax year). One of the simplest way to protect your investments from any future CGT liabilities is to shelter them with an ISA. Once held with an ISA there is no further tax to pay on any investment income, and no tax to pay on gains. Each tax year you have an ISA allowance. If the allowance is used every year it offers the opportunity to build a significant portfolio of tax sheltered assets in the long run. This year the ISA allowance has risen to £11,280, that means a couple could shelter as much as £22,560 in ISAs. Tax benefits of Stocks & Shares ISAs For those who already hold investments showing substantial gains there are some simple steps you can take to reduce, or even eliminate completely, any CGT liability. Please note tax rules are subject to change, and the benefits of tax shelters will depend on your circumstances. 1. Offset losses against your gains If you sell an investment and make a loss, the loss can be offset against any gains you have made in the same tax year. If your losses exceed your gains, you can register the losses on your tax return to offset against future gains. 2. Sell when you pay tax at a lower rate The rate of capital gains tax is based on the rate of income tax you pay so your CGT bill will be lower if you realise gains when your income is lower. If you know your taxable income will fall in the future, perhaps due to retirement, you could consider delaying selling until then. However you should always look at your investment objectives and merits first and look at the tax benefits as an added bonus. 3. Transfer to your spouse and pay less tax You can normally transfer investments between spouses without an immediate tax charge. This means a married couple (or those in a registered civil partnership) can use both their annual allowances to make gains of £21,200 this tax year without paying CGT. If your spouse pays tax at a lower rate than you, you could transfer the investments into their name before selling to benefit from CGT at the lower rate. 4. Reduce your taxable income Because the rate of capital gains tax you pay is linked again to the rate of income tax you pay, reducing your taxable income could reduce the amount of capital gains tax you pay. The easiest way to do this is through tax shelters such as ISAs - income from an ISA is free from further tax. In some cases you might be able to reduce your taxable income for a particular year - perhaps by transferring income-bearing assets such as cash deposits, to your spouse. 5. Use your pension to reduce capital gains tax A pension contribution can also be used to reduce capital gains tax liability for many investors by taking advantage of the tax relief on the contribution. Effectively your basic rate tax band is increased by the amount of the pension contribution, meaning larger gains might be realised before the higher rate of capital gains tax is payable. For example, a pension contribution of £3,600 will extend your basic rate tax band from £42,475 to £46,075. Providing your taxable income and gains are less than £46,075 in this tax year, you will pay capital gains tax at 18% and none at 28%. Find out more about Capital Gains Tax and how Tax Affinity Accountants can help you visit our website and arrange an a free initial consultation. Please remember all stock market investments can fall as well as rise in value so you could get back less than you invest . Tax Affinity Accountants based in Kingston upon Thames are experts in advising the public in all matters to do with tax and accounting. |
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