Capital Gains Tax Planning: Tips for Reducing Your Tax Liability

Capital Gains Tax (CGT) is a tax on the profit when you sell (or ‘dispose of’) an asset that has increased in value. It’s the gain you make that’s taxed, not the amount of money you receive. Navigating CGT can be daunting, but with careful planning, you can minimize your liability. Here are some tips to help you effectively manage CGT in the UK:

1. Use Your Annual Exemption

Each tax year, individuals have an annual CGT exemption (£6,000 for the 2023/24 tax year & £3,000 for  24/25  onwards). Ensure you utilise this allowance by timing the disposal of assets to maximise your exemption.

2. Offset Losses

Offset any capital losses against your gains to reduce the taxable amount. Keep records of past losses, as they can be carried forward to future years.

3. Utilise Tax-Advantaged Accounts

Investing through ISAs (Individual Savings Accounts) or pensions can shield your gains from CGT. Gains made within these accounts are exempt from CGT.

4. Consider the Timing of Disposal

Strategically timing the sale of assets can help spread gains across different tax years, ensuring you make full use of the annual exemption each year.

5. Gifting Assets to Spouse

Transferring assets to a spouse or civil partner before selling them can be tax-efficient, as transfers between spouses are exempt from CGT and both partners can utilise their individual exemptions.

6. Claim Entrepreneur’s Relief

If you’re selling a business or shares in a trading company, you may qualify for Business Asset Disposal Relief (formerly Entrepreneur’s Relief), which reduces the CGT rate to 10% on qualifying gains.

7. Keep Comprehensive Records

Maintain detailed records of all asset acquisitions, improvements, and disposals. Accurate documentation will ensure you claim all allowable deductions and exemptions.

8. Seek Professional Advice

Tax rules are complex and subject to change. Consulting with a tax advisor can help you navigate the intricacies of CGT and implement the most effective strategies for your specific situation.

By incorporating these tips into your tax planning, you can significantly reduce your Capital Gains Tax liability and optimise your financial outcomes. For personalised advice tailored to your circumstances, contact us at 1 Accounts Online. We’re here to help you manage your finances with ease and expertise.

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