Top 10 tips to save capital gains tax
2. If you are married (or in a registered civil partnership), make use of both of your Capital Gains Tax (CGT) allowances. Investments can be transferred between you without tax charge and then cashed in.
3. Use the proceeds of encashments to fund your ISA allowance, known as Bed & ISA. Investments within an ISA are not subject to Capital Gains Tax (CGT) or any further income tax.
4. Use the proceeds of encashments to fund a pension, known as Bed & SIPP. Almost every UK resident up to age 75 can contribute to a pension including a SIPP and enjoy tax relief at the basic rate, even if you are a non-taxpayer. Investments within a SIPP are not subject to Capital Gains Tax (CGT).
5. Offset any losses you might have against gains (using previous years losses is more tax-advantageous as the annual allowance is used first). If you have no gains, Capital Gains Tax (CGT) losses can be carried forward indefinitely but you need to register them on your tax return within 5 years of making the loss.
6. Spread your encashment over a number of tax years, using your CGT allowance each year.
7. Some more sophisticated investments are Capital Gains Tax (CGT) free. For example, Venture Capital Trusts (VCT) where up to 30% tax relief is available on the initial investment and there is no Capital Gains Tax (CGT) or income tax to pay on the profits. VCTs are higher risk investments.
8. Enterprise Investment Schemes (EIS) are also CGT free. You can also defer capital gains tax by investing into an EIS. In addition, you also enjoy as much as 20% tax relief on the amount that you invest. EIS are for those who can afford to take higher than average risks and invest upwards of £50,000 into the scheme. After two years, holdings in Enterprise Investment Schemes (EIS) are normally free of inheritance tax.
9. There is no Capital Gains Tax (CGT) on death. Therefore holding a unit trust or share until death means no Capital Gains Tax (CGT) to pay. That said you pay inheritance tax instead if your taxable estate is worth more than £325,000 (£650,000 for most married couples).
10. A pension contribution can also be used to reduce capital gains tax 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 gross pension contribution of £3,600 will extend your basic rate tax band from £43,875 to £47,475. Providing your taxable income and gains are less than £47,475 in this tax year, you should pay capital gains tax at 18% and none at 28%.