You pay CGT at a rate of 18 per cent (or 28 per cent if you are a higher rate taxpayer) if you sell something for more than you paid for it. However, there are a number
of ways to avoid capital gains tax altogether.
Legitimately avoiding capital gains tax avoidance is a specialist field. Always take advice from a certified accountant or tax advisor before
doing anything!
However, simply rearrange some of your existing investments, so that they are as tax-efficient as possible, and you may avoid capital gains tax altogether.
PLEASE NOTE: Not all suggestions below, in order to avoid capital gains, fit all people, however here are some simple steps for you to consider:
1.√Use your annual CGT allowance:
Use it or lose it. This is probably the asiest option how to avoid capital gains tax. Each year, before the tax year ends, consider selling assets to use up your allowance (without going over it!). Your £10,100 personal capital gains tax allowance is for the gain on sales -not
the total value of the sale.
2.√Keep track of your losses:
If you make an overall capital loss in a year, you should declare it on your Self Assessment tax return.
Second best in your strategy to avoid capital gains tax: use capital losses that you have declared to reduce your capital gains in this and future years when you might otherwise be liable for capital gains tax.
3.√Use your declared losses:
You may be able to reduce the amount of CGT payable on some assets by offsetting a loss. For example, if you make a loss when disposing of one asset that would attract CGT, you may be able to deduct this loss from capital gains that you have made on other assets.
4.√Realise gains and re-invest them:
Realise a capital gain at current rates, and re-invest in a tax shelter. Such as a Stock and Shares ISA, a SIPP, a VCT or EIS.
5.√ Sell some of your equity holdings:
Make use of the current CGT annual exemption of £10,100 and the current 18 per cent flat rate. Repurchase your holdings within a stock and shares ISA using the maximum annual ISA allowance of £10,200. Capital gains within an ISAs are free of CGT.
6.√ Transfer your assets to your spouse or civil partner:
These kind of transfers are not deemed a sale, so the original cost and gain is transferred across. There is no CGT to pay at that point. The assets should be held by the partner on the lower tax rate. CGT may have to be paid if and when the lower rate tax payer sells the assets.
Given the Conservatives commitment to 'reward' marriage it's unlikely that any action will be taken to remove the free transfer of assets between spouses. So, this remains an important area when you want to avoid capital gains tax.
7.√ Shelter your gains in a SIPP:
Capital gains tax does not apply to capital gains arising in pensions.
The amount that may be contributed to a SIPP has been restricted and from next year higher rate tax relief will be gradually phased out for higher earners.
This year, however, some people who are to pay the new top rate of income tax at 50 per cent may still be able to benefit from full tax relief on their contributions.
8.√ Consider Venture Capital Trusts:
When investing shares in a Venture Capital Trust (VCT) for five years, any capital gains arising are exempt from CGT.
9.√ Become a venture investor:
Consider an investment in a company requiring funding. You can avoid capital gains tax, in the short term, by reinvesting gains under the Enterprise Investment Scheme.
Provided you hold the EIS investment for three years the CGT is "rolled over". This is capital gains tax deferral rather avoidance. However, this rolling over can be done indefinately.
10.√ Become an entrepreneur:
Currently, entrepreneurs relief include a reduced rate of CGT of 10 per cent on gains of up to £5million from the sale of shares in a business. To qualify you need to own 5 per cent of the shares, have held the shares for a year, and most be working for the company.
11.√ Do you need to sell:
Capital gains tax only becomes liable when you sell (or transfer) your asset.
You may be able to avoid the increase in capital gains tax altogether if you don't need to sell now. Just hold onto your assets and wait for the CGT rate to fall again before selling.
I expect, though, that you may need to wait a good many years for the CGT rate to come down to 18 per cent, or, similar, if ever, to that kind of level.
12.√ Conclusion:
You’re unlikely to pay 28% on your gains in any one tax year
Let me explain: if you’re a higher rate taxpayer and realise profits of £20,200, the first £10,100 is not taxed, the next £10,100 is taxed at 28%. Therefore the total tax is £2,828 or effectively 14% of your profits.
13.√ Conclusion:
Paying capital gains tax is avoidable for most people. Consider some of our suggestions and you may avoid paying capital gains tax entirely, unless of course you’re very wealthy.
