Not everyone thinks of capital tax planning but a little bit of tax planning can save you a lot of tax over the years.  Capital tax planning is especially important if you are thinking of incorporating your business.

Year-end tax planning tip 1 – annual exempt allowance

Everyone has an annual exempt amount which is wasted if it is not used in the year; it cannot be carried forward.  Try to spread your capital disposals to use your full exemption each year.  Bed and breakfasting shares used to be a popular way of using the allowance but this cannot be done now.  Instead you can:

  • sell and buy shares in the same sector but not in the same company;
  • your spouse can purchase the shares you have sold; or
  • your ISA can purchase the shares you have sold.

Remember that married couples and civil partners can transfer assets between them with no tax so an asset can be transferred and sold by the spouse that has not used their exempt allowance, saving tax.

Year-end tax planning tip 2 – capital losses

If one spouse has losses make sure that assets are transferred to the spouse with the losses before selling

Year-end tax planning tip 3 – second home

If you have purchased a second home during the year you can make an election to make one home a principal private residence.  This election gives you flexibility in the future over which home you pay capital gains on, remember MP’s flipping their residences – it is legal and you can flip too!

Year-end tax planning tip 4 – entrepreneurs relief

Selling an interest in a business can attract entrepreneurs’ relief.  You can also qualify for this relief if you incorporate a business or partnership.  The effective rate of tax on a business disposal is 10% on the first £10 million.