:: Capital Gains Tax ::

52 Ways To Save Tax #14

There are lots of ways that you can reduce the amount of tax that you can pay. And, with a range of different taxes affecting everything from your income to your insurance, the ways of mitigating the tax that you pay vary depending on the type of tax.

Capital Gains Tax can be charged on the profit or gain made when you sell, gift, transfer, exchange or dispose of an asset. If you’re a higher rate taxpayer then you can face a tax bill of up to 28 per cent but there are ways to reduce the amount that you pay.

Keep reading to find out how transferring assets that you own into joint names or into the name of your spouse/partner can help you to reduce the amount of Capital Gains Tax that you pay.

52 Ways to Save Tax – Part 14 : Transfer assets to your spouse/partner

Capital Gains Tax (CGT) is payable on the profit that you make when you sell or gift an asset. And, like other types of tax, each individual has an annual personal CGT allowance.

John Fletcher, director of financial planning at Brewin Dolphin, explains: “Each individual has a personal CGT allowance every year (6 April to 5 April), which for many investors is sufficient for avoiding a CGT liability.

“Any gains in excess of the allowance are charged to CGT at either 18 per cent or 28 per cent, depending on the individual’s other total taxable income in the year the gain arises.”

The current personal CGT allowance (tax year 2015/16) is £11,100 and this applies when you sell assets such as shares or a house. It effectively means that in the 2015/16 tax year you can make a profit of £11,100 on an asset (or assets) before you pay any tax on the gain.

One way to reduce the amount of CGT that you pay is to consider transferring assets into joint names or to your spouse or partner’s name. Transfer between spouses is currently exempt from CGT which means that assets can be transferred between husband and wife or civil partners so that both annual CGT allowances are used.

By transferring an asset into your joint names, you can both make use of your tax-free CGT allowance so that up to £22,200 of any gain can be tax-free in 2015-16. For example, transferring a rental property into joint names means that you can benefit from £22,200 ‘tax free gain’ when you come to sell the asset.

Remember that the transfer to your spouse or partner must be a genuine outright gift.

Mel Kenny of advisers Radcliffe & Newlands says: “Those in poor health may have worries about their financial planning and paying too much tax.

“One consideration for married couples with big gains sitting on their assets is to transfer these assets of the spouse in good health to the spouse in poor health so that capital gains are wiped out on death and the value is rebased from that date.”

52 Ways to Save Tax #10

If you sell an asset for a profit then you may have to pay tax on the money that you make. This is called ‘Capital Gains Tax’ and could leave you with a sizeable tax bill if you sell shares, antiques or investment property for a profit.

In the next part of our series ‘52 Ways to Save Tax’ we look how you can pay less tax by using your annual Capital Gains Tax allowances. Keep reading to find out more.

52 Ways to Save Tax – Part 10: Use your Capital Gains Tax allowance

Capital Gains Tax (CGT) is the tax that you pay on the profit that you make when you dispose of an asset. Remember that any tax that is due is paid on the ‘gain’, not the whole amount you sell the asset for.

For example, you buy a painting for £10,000 and sell it for £50,000. The ‘gain’ you make is £40,000 and any CGT that is due would be paid on this amount.

It is not just selling an asset that creates a potential Capital Gains Tax liability. You may also have to pay tax if you gift an item to someone else, swap it for another asset or if you got compensated for it (for example if you received an insurance payout because an asset was destroyed).

When you may have to pay Capital Gains Tax

You may have to pay Capital Gains Tax if you make a profit (‘gain’) when you sell/dispose of a personal possession for £6,000 or more. Assets on which CGT may be payable include:

  • Jewellery
  • Paintings
  • Shares not held in an ISA or PEP
  • Antiques
  • Stamps and coins
  • Property that is not your main residence

When you don’t pay Capital Gains Tax

There are certain items that are exempt from Capital Gains Tax and certain annual exemptions that you can use. These will help you to dispose of an asset on which you have made a gain without having to pay any tax.

You don’t pay CGT on:

  • NISAs, ISAs or PEPs
  • Betting, lottery or pools winnings
  • UK Government gilts
  • Premium bonds
  • Personal possessions with a lifespan of less than 50 years
  • Most gifts to your husband, wife, civil partner or a charity
  • Your car – unless you’ve used it for business

You also have an annual Capital Gains Tax allowance, called the Annual Exempt Amount. This means that you only have to pay Capital Gains Tax on your overall gains above your tax-free allowance which, in the tax year 2014/15, was £11,000.

Working out your gains

You won’t pay any Capital Gains Tax if your total taxable gains are below your annual Capital Gains Tax allowance (£11,000 in the 2014/15 tax year). To work out what your gains are you should:

  • Work out the gain you have made on each asset that you have disposed of in the last tax year (shares, personal possessions etc)
  • Add together the gains to make a total
  • Deduct any allowable losses

If your total gains are below your allowance you won’t have any Capital Gains Tax to pay.

If your gain is above the CGT allowance then you will have some tax to pay. The basic rate of CGT is 18 per cent although higher rate taxpayers – which may include you if your gains added to your other income carry you into the higher band – pay 28 per cent.