Who wants to pay tax?

Well no one if it can be legally avoided!  So what steps can you take before 5 April 2014 to reduce your capital gains tax bill?

Use the annual exemption

This may sound obvious but if you can select a few investments to sell that just use up your £10,600 annual exemption it will add up to quite a saving over the years.  If you don’t use your exemption you lose it.

For example, if you sell shares for £20,000 that you purchased for £10,500 you will have a gain of £9,500.  If this is your only capital gain transaction in the tax year the full gain will be tax free.

Use losses

If you are expecting to sell a buy-to-let property at a profit and you have some shares standing at a loss.  It may be worth selling some of the shares to convert the loss in value into an actual loss.  The loss on the sale of the shares can be set against the profit on the buy-to-let.

Remember that loss set-off is an all or nothing claim so you cannot restrict the claim to preserve your annual exemption.

You have four years from the end of the income tax year in which you made the loss to claim the capital loss.  Once you have made the claim the loss, if it is not used, can be carried forward indefinitely.

Relieve capital losses against income

A capital loss on the disposal of unquoted shares can, sometimes, be relieved against income.  You must make a claim within 12 months of 31st January following the end of the tax year.  So to set a capital loss on unquoted shares against income of 2012-13 you must claim by 31 January 2015.

Deferring disposals

If you have utilised your annual allowance for the current tax year you may want to consider deferring any disposal until 6 April, and the start of the new tax year.

Bed and spousing

A number of years ago, clients with a substantial portfolio of quoted shares would “bed and breakfast” them each year.  That is, the person would sell the shares and then repurchase them shortly afterwards.  The gain would then be covered by the annual exemption and the cost would be higher.

This can no longer be done but a variation is possible.  You can sell the shares and your spouse can re-purchase.

Negligible value claim

A negligible value claim can be made when an asset becomes of negligible value.  The effect of the claim is that the asset is treated as sold and re-purchased for £nil by the owner.  A capital loss arises at the time of the deemed disposal.  You can then set the loss against other gains.

Entrepreneur’s relief

This relief will reduce your capital gains tax rate to 10% if you qualify.  The relief is generally available to sole traders (self-employed) on a disposal of their business, partners on the disposal of their partnership share or on the disposal of shares in a trading company by an employee or director owning at least 5% of the shares.

The gain that qualifies for entrepreneur’s relief has increased over the years and is now (2012-13) available on £10 million.

By planning before you make a disposal of a capital asset you could limit your tax liability and save money.

Please contact Clearways Accountants on 01737 244298 or through the contact form below if you would like help in planning your tax affairs before 5 April.