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Five Ways to Save Tax

5) Reduce your capital gains tax liabilities

Many people assume that capital gains tax (CGT) is something that only applies to the better-off. After all, when was the last time that anyone made CGT gains of more than £9,600 (the limit for 2007-2008), in any tax year?

In fact, it is easy to find oneself facing large CGT bills, especially if you own a second property and sell one of them, or sell some shares to fund your retirement.

The good news is that CGT is subject to what is called “taper relief”. This means that the longer you hold an asset, the less tax you pay on it. Business assets receive more aper relief than non-business ones. You can find more details in our [LINK]Capital Gains Tax Fact Sheet.

But there are other ways of cutting your CGT bill as well. Here are some of them:

• Offset losses against gains: if you hold a range of assets, such as shares, there is a possibility that you may have recorded losses on some of them. In this case, consider disposing of assets that have shown a loss at the same time. You can set that loss against a taxable gain.

• Maximise tax-free gains. Everyone, including children, has the same CGT allowance. Spread ownership of your investments to maximise your tax-free gains.

• Transfer assets to your spouse. CGT allowances apply to individuals: therefore spouses receive a double allowance. You can effectively double your tax-free allowance, if you are married, by giving assets to your spouse to dispose of.

• Use lower rate tax bands. Since CGT is added to your income to determine the level at which it should be paid, gains should be realised by the spouse with the lower rate of tax.

• Make best use of exemptions. If you own two homes, within two years of acquiring the second one decide which one you want to treat as your primary residence for tax purposes.

• Defer the gain. If there are no losses or reliefs you can use to cut your tax bill, you can defer it by reinvesting the gain in venture capital trusts or in the shares of certain small companies.

In all cases, you are likely to need tax advice from an expert to maximise the amount you save. Here are some places to go to:

Institute of Chartered Accountants in England and Wales (ICAEW): http://www.icaew.co.uk/

Institute of Chartered Accountants of Scotland (ICAS): http://www.icas.org.uk/directory/

Institute of Chartered Accountants in Ireland (ICAI): http://www.icai.ie/index.cfm


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