Whether you are wanting to avoid Capital Gains Tax on your property, there are a few legal tactics and loopholes you can look into. Or even at the very least you want to reduce your bill, then we have advice for yourself.
To start What is Capital Gains Tax?
It is the tax when you sell something (for example a house) that has increased in value.
An example, say you bought something for £10,000. You, at a later date, sold this for £30,000. This mean you gained £20,000 (minus the starting £10,000 off the new £30,000).
You may be wondering, how do they calculate this? Well, you are taxed on the gain you have made, not the money that you have received.
Bare in mind, some of the assets you may have will be tax-free. The best place to check this would be on the Gov.UK website. You may not have to pay CGT if any or all your gains within a year are under your tax-free allowance.
What does it mean by disposing of an asset?
Disposing is the most used word when it comes to getting rid of your assets. The term disposing includes:
- swapping the asset for something else
- selling it
- transferring it to someone else or giving it to someone as a gift
- Getting compensation for your asset. Such as an insurance payout
When do you have to pay CGT?
There are certain times when you need to pay CGT. These are when you ‘dipose of’ or sell:
- A property that isn’t your main residence
- Any business assets
- Any shares that are not within an ISA or PEP
- If you have used your property for business use, renting out or if it is rather large
- If most of your personal possessions are worth over £6,000 – apart from your vehicle
These assets are all known as ‘chargeable assets’. Depending on which asset, you may be able to reduce the amount of tax you have to pay and claim relief.
If you decide to dispose of an asset that you have joint ownership to, you will only have to pay CGT on your share of the gain.
When do you not have to pay CGT?
The list above states when you will have to pay any CGT. If nothing on the list above applies to you, you will not have to pay CGT.
If you are donating your asset as a gift, then if this is going to a partner, wife, civil partner, husband or charity.
If unfortunately someone passes away, then CGT won’t be used, it will be inheritance tax due to you inheriting the asset.
There are a few ways to avoid paying CGT
- Spreading the gains over tax years – rather than selling the whole heap of shares in one go, you could split these between more than two tax years.
- Gift an asset to your partner – as mentioned, gifting a partner an asset exempts any CGT from being paid.
- The technique ‘bed and spouse’ – this is basically where one spouse may sell their shares to a broker, whilst the other buys them back from the same broker.
- Set up an ISA – any gains created in an ISA are CGT free.
- Reduce any taxable incomes – this can be done through salary sacrifices, deferring a state pension or change of your earnings to a pension income.
I started writing for PPO back in August 2019. I particularly enjoy writing about new housing developments and upcoming property events.