How to minimise capital gains tax
Investors can often get caught up in their financial plans, often forgetting the liabilities and tax consequences that are naturally tied with building their investments portfolio.
Planning your strategy thoroughly is imperative, as this can have an impact on the amount of taxes that will be accumulated.
Capital Gains Tax (CGT) is a type of tax that can be charged on the profits made when selling, gifting, transferring, or exchanging certain assets. Some of these Capital Gains Tax rules may be different for British expats.
So, what can you do to minimise your capital gains tax?
There are several ways to do so. However, Capital Gains Tax is a complex subject and should always be consulted with an expert, contact us today to speak to an adviser regarding your tax plan.
1. Use your CGT allowance
The Capital Gains Tax allowance for an individual in 21/22 is £12,300. The allowance for couples (married or in a civil partnership) is £24,600. This allowance is a great opportunity to realise gains of this amount without encountering any tax liabilities.
CGT exemptions can’t be carried forward onto the following year, so it is best to make sure that an individual’s exemption is used correctly each year.
2. Transfer to your spouse
Furthermore, there are some occasions where it is more beneficial to transfer holdings to a partner (married or in a civil partnership) who is currently hasn’t used their existing allowance or is in a lower tax bracket. To do this, the transfer must be a gift.
3. Absorption of losses
You can reduce your CGT liability by using lowering your gains by using your losses. If your losses are larger than your gains, you can carry them forward, given that they are diligently reported to the HMRC within a four-year period from the end of the tax year the asset was initially disposed of.
4. Invest in an ISA
Many investors don’t realise that the current ISA allowance is £20,000 in the 21/22 tax year. For couples (married or in a civil partnership) this is £40,000.
Additionally, gains and losses made on investments that are within an ISA are exempt from Capital Gains Tax.
5. Manage your income
The rate that you pay on CGT is dependent on your income and the tax band that this falls on. One way to do this is by doing charitable donations.
6. Contribute to a pension
Another way to manage your income is by making a pension contribution. Doing this can help you save on Capital Gains Tax, as it will increase the limit of an income tax band.
If you have any further concerns regarding your Capital Gains Tax, particularly when living abroad, contact us to speak to an adviser.
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