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Reduce capital gains tax on your investments

No-one likes paying capital gains tax (CGT). If you're a higher or additional rate taxpayer you're going to be paying 28% tax whenever you sell your assets. If you're selling high-value items or disposing of a large part of your portfolio, that can amount to a lot of tax.

If you're thinking about selling assets, here are some key ways to reduce your tax bill.

Annual exemption

CGT is only paid on gains that exceed the tax-free allowance. Any amount under the allowance threshold is tax-free. For the 2015/16 tax year, the allowance is £11,100. If you're selling multiple assets for more than the exemption amount, think carefully about the timing of the disposals. Why not wait until the next tax year before cashing in on one of your assets?

Entrepreneurs' Relief

If you're selling shares in a business, you may be eligible for Entrepreneurs' Relief. The relief reduces the rate of payable CGT to 10% on qualifying assets. In order to be eligible you must meet the following the conditions for at least 1 year before you sell:

  • you must own a minimum 5% of shares and voting rights
  • you must be either an employee or a director
  • the company's main source of income must come from trading goods and services.

Capital losses

You can use capital losses to offset any gains exceeding the tax-free allowance. For example, if you made gains of £15,000 in the 2015/16 tax year but made a £5,000 loss in the same period, you can deduct £3,900 of this loss to bring your total taxable gains within the allowance threshold.

You can also deduct unused losses from previous years if your taxable gains are still above the threshold.

Gifts

Although there are some exceptions, you won't generally have to pay CGT on assets given or sold to your spouse, civil partner or charity:

  • Giving or selling assets to your spouse or civil partner
    Assets gifted or sold to your spouse or civil partner will not be charged CGT. However, you will be charged if you split up and didn't live together during the relevant tax year, or if you gave them the assets for their business to sell on.
  • Giving or selling assets to charity
    No CGT will be charged on gifts made to charity. However, you may be charged if you sell an asset to a charity at a profit or at less than the market value.

Reinvestment

You may be eligible for CGT reliefs if you reinvest gains into small, private companies. There are generous reliefs to take advantage of in the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme if you don't mind the associated risks. Disposal relief, deferral relief and reinvestment relief bring different benefits and come with different strings attached. Speak to an adviser to find out more about reinvesting your gains.

Talk to the tax experts

We can reduce your exposure to CGT. Contact us on 0208 515 2929 or email info@sterlingca.com to find out more.