Making a capital gain is usually great news – paying tax on it isn’t! So here are some tax planning tips to help you reduce your Capital Gains Tax (CGT) bill.
These tips were kindly provided by Carol Cheesman, principal of Cheesmans Accountants (further information follows the article).
1. Use your annual exemption
You cannot carry forward your annual exemption, (£10,600 for 2012-13) so make sure you use it if needed. Also bear in mind that same year gains and losses have to be merged before the annual exemption is applied.
Spouses and civil partners are entitled to their own annual exemptions and these can be fully utilised by making a transfer to a spouse or civil partner. However this has to be done carefully in order to prevent HM Revenue & Customs successfully challenging the transfer. Be sure not to make any arrangements to effect the sale until the transfer is complete and leave a reasonable interval between the transactions and specifying that the transfer is absolute and unconditional.
2. Use your losses
It you have any investments standing at a loss then it may be beneficial to crystallise those losses – especially if you have current year gains taxable at the higher rate of 28%. The set off of losses against same year gains cannot be restricted and so any potential wastage of the annual exemption should be considered.
3. Capital losses
A capital loss must be claimed within four years of the end of the tax year in which it occurred for relief to be given. The loss claimed can subsequently be carried forward indefinitely.
4. Deferring disposals
Deferring the sale of assets until after the end of the tax year should be considered if the annual exemption for the current year has already been used – this also defers the payment until the following January 31st.
5. Capital losses and Income
Capital losses realised in respect of unquoted shares can, in some cases, be relieved against income. However, the relief must be claimed within 12 months of 31 January following the end of the relevant year of assessment.
6. Bed and Spousing vs Bed and Breakfasting
“Bed and breakfasting”, whereby a person sells stocks or shares and then repurchases them shortly afterwards to secure a higher acquisition cost, is no longer of much use as it has been negated by the rule requiring a disposal to be matched with any acquisition of securities of the same class in the same company in the next 30 days. However “bed and spousing” is still possible as this rule only applies to a repurchase by the same person. So, a spouse or civil partner can repurchase the shares without this rule being applied.
7. A worthless asset?
A negligible value claim can be made where an asset becomes worthless. The effect of the claim is that the owner of the asset can pretend that he has sold the asset in question for its current market value and frequently the current market value of the asset is zero. The asset is then deemed to have been reacquired by the owner for the same price and the owner’s base cost for capital gains tax purposes will be nil.
A capital loss arises at the time of the owner’s deemed disposal of the asset. The loss can be treated as arising in the tax year in which the negligible value claim is made or as arising in any of the two tax years immediately preceding the claim, provided HM Revenue & Customs are satisfied that the asset was of negligible value in those two years.
About Carol Cheesman
Carol Cheesman is Principal of Cheesmans Accountants based in Islington, North London. Always client focused, she regularly meets with clients in person and has a hands-on approach in all of the services the firm offers.