With less than a month until the end of the tax year, we need to consider what we can do to try and minimise any potential Capital Gains Tax payments due now or in the future.
From 2023/24 we will be seeing a significant change in the Capital Gains Tax (CGT) allowance for the first time in quite a while. However, even with just a few weeks to go, there are still things we can do at this moment in time to mitigate the impacts further down the line.
Capital Gains Tax Allowance
Currently, an investor can make tax free gains of up to £12,300 a year, but the Government announced in their budget (The Jeremy Hunt budget) that this capital gains tax allowance will reduce to just £6,000 in 2023/4, and reduce even further in 2024/5 to a stingy £3,000!
How Much is Capital Gains Tax?
Depending on your tax bracket, higher rate and additional rate taxpayers pay 20% on any gains in excess of this allowance, and basic rate taxpayers pay 10% on any gains in excess of this allowance.
Capital Gains Tax Rate for Property
The above differs from property gains, where taxpayers would pay 28% and 18% respectively.
Options for Reducing your UK Capital Gains Taxes
There are multiple ways to reduce your capital gains, making sure money more money stays in your pocket for you and your future generations, as opposed to going into the hands of the tax man.
In fairness, capital gains tax can be quite complex and without taking professional advice you could see yourself paying unnecessarily high levels of tax, both now and in the coming years.
Your annual GCT exemption is a crucial starting point. This exemption is unable to be carried forward from previous tax years. Therefore, making full use of this exemption on an annual basis can save you from incurring a large CGT liability in the future.
Considering this years allowance is £12,300, it would be sensible to try and use this more generous allowance before the significant reduction.
You can also make use of previous losses which can be offset against the gains in the same tax year reducing the amount of gain subject to tax.
These losses can be brought forward from previous tax years, provided that they have been reported to HMRC within four years from the end of the tax year that the asset was disposed of.
If you are married or in a civil partnership, any transfer of assets are exempt from CGT. Therefore, each partner can use their individual CGT allowance and transfer from one partner to the other without any tax liability, effectively doubling the CGT exemption.
Individual Savings Accounts (ISA)
Another option to consider is an individual savings account (ISA). These investment wrappers grow free of CGT, and have an allowance of £20,000 per annum. This is effectively doubled for married or couples in a civil partnership to £40,000 per annum, if each individual has one.
Investments into a pension are also a great option. Making a pension contribution from relevant earnings can help you save capital gains tax as it increases the upper limit of your income tax band. In turn, you could be paying CGT at a lower rate.
Some other options to consider are gifts to charities, where CGT relief is available on land, property or qualifying shares.
For certain business assets, gift hold over relief may be available if you give them away to help the buyer if you are eligible you won't pay capital gains tax when you give away the assets, but the person you give them to might be liable for capital gains tax when they sell them.
Lastly, gains on chattels may be tax free.
Final Thought on Capital Gains Taxes
In summary CGT can be a complicated subject and there are many routes and options to consider to mitigate these gains, so it may be best to seek professional advice if you are not sure.
Capital Gains Tax Calculator
You can find a handy Capital Gains Tax Calculator here