TAX NEWS - JUNE 2010

UK Tax: Top tips to save capital gains tax

Capital gains tax (CGT) is set to rise for the majority of people. Changes are due to be announced in the emergency Budget on 22 June so it's currently too early to know what the new rates will be. Here we look at some of the best ways for you to save CGT. Although changes in tax are rarely retrospective we do not yet know when the changes will take effect.

1. Use your capital gains tax allowance each year. Between you and your spouse you can realise profits of up to £20,200 this tax year. One of the easiest ways to do this is by using Bed & ISA.

2. If you're considering realising large gains at some stage (selling buy-to-let property, for example, or restructuring a portfolio) you might consider doing it now to beat any rise in CGT in the emergency Budget.

3. If married, move your investments into the name of the person who pays the lowest rate of tax. If the expected changes to Capital gains tax (CGT) emerge, basic rate taxpayers are likely to pay Capital gains tax (CGT) at around 20% whereas higher rate taxpayers could pay 40%.

4. Delay taking profits until a new tax year when you can use another year's Capital gains tax allowance. This does run the risk of a reduction in the Capital gains tax (CGT) allowance and a possible rise in the rate of Capital gains tax paid

5. Place existing investments in tax shelters such as ISAs and SIPPs. Venture capital trusts are another tax-efficient investment which more experienced investors could consider.

6. Consider investing in funds such as unit trusts rather than individual shares. Capital gains tax (CGT) is only paid when gains are realised by an individual investor. Share dealing by a fund manager within a unit trust does not incur Capital gains tax (CGT). This also applies to multi-manager funds where the buying and selling of funds by a fund manager within a multi-manager fund does not incur Capital gains tax (CGT).

7. Consider investments which are not subject to Capital gains tax (CGT). After an ISA and a pension, these include gilts and national savings products.

8. Consider offshore investment bonds. These investments start to look more attractive once you have used your ISA allowance and regularly use your Capital gains tax allowance

9. Minimise your income tax. Assuming Capital gains tax (CGT) is re-linked to income, reducing your taxable income could help minimise the capital gains tax you pay. This includes holding income-bearing investments in an ISA and holding investments in the name of the spouse who pays the least tax.

10. If CGT rates rise, clever use of a pension contribution could reduce your liability. Pension contributions increase the amount of income you can receive before you start to pay higher rate tax. Remember though, once invested you cannot access your money until retirement (from age 55).


Sheltering existing investments

Bed & Breakfast has been replaced by a suite of "Bed &" transactions. All these transactions aim to realise gains (or losses) either within the annual allowance (£10,100) or at the current rate of 18%, with the view to rebase and, in many cases, shelter from future taxation.