CAPITAL gains tax (CGT) soon adds up. Upon exceeding your allowance of £10,600, you will be charged either 18 per cent if a basic rate taxpayer, or 28 per cent CGT if a higher or additional rate taxpayer. There are a number of ways in which you can mitigate the pain from this second and third bite from the taxman – including using the allowance of your spouse or civil partner, moving investments under tax umbrellas and offsetting your losses.
1 To transfer and to gain
Married couples, or those in a registered civil partnership, can make collective gains of £21,200 a year without paying CGT. As such, if one partner is a higher or additional rate taxpayer and the other has little or no income “it is vitally important to ensure the lower earning spouse’s basic rate band – currently £35,000 – is fully used,” says Roger Holman, senior tax manager at Cripps Harries Hall. But he warns: “Following changes made a few years ago to some anti-avoidance legislation, spouses need to be careful about transferring loss making assets.” However, Holman says “if one spouse has loss making assets that the couple is keen to dispose of, while the other has assets standing at a gain, those gain making assets can be transferred without triggering the anti-avoidance legislation.”
2 Profit from loss
Losses on investments can be offset against gains made in the same year. Cox explains: “If there are more losses than gains, you can register these on your tax return and carry them forward to offset against future gains.” In effect, losses are an increase to your capital gains tax allowance, says Cox. Lorreine Kennedy, founder of CareMatters, notes though that this only applies if the asset normally attracts CGT. She advises that “you should notify HMRC of the loss by completing a self assessment form.”
3 Shelter from the storm
Danny Cox of Hargreaves Lansdown explains that because people generally pay a lower rate of CGT than income tax, it is “important to hold income bearing investments in a tax efficient Isa or Sipp and low yielding investments outside.” Adrian Lowcock says: “Investors can also use their Isa or Sipp to effectively manage their capital gains bills.” He points out that although “bed and breakfasting” (selling an investment one day to buy it back the next) has been banned, investors can instead “bed and Isa”, “bed and Sipp” or “bed and Spouse”, in which they sell and buy the same investment back within an Isa, Sipp, or via their spouse or partner.