The UK is a great country to live in, but with taxes, it can be quite the opposite. In this article, we cover 3 ways to avoid paying capital gains tax. Even if you don’t plan on moving abroad anytime soon, these tips can help you save money throughout the year and help ease the burden of taxes!
Introduction
One of the most important taxes you’ll pay as a UK resident is Capital Gains Tax (CGT). If you’ve made any profits from selling assets during the year, you may have to pay CGT on those profits.
But there are ways to reduce your CGT liability, and this article will outline them.
Tip 1: Avoid selling assets that are subject to CGT
The first step is to avoid selling assets that are subject to CGT. This includes properties, shares, and other investments that could potentially incur CGT on their sale. Instead, try to sell assets that are exempt from CGT, such as savings accounts and ordinary shares.
Tip 2: Claim your losses against other income
If you’re able to claim losses against other income in order to reduce your CGT liability, this is a good strategy. For example, if you’re able to write off the cost of your assets against your income from working, this will reduce your CGT liability. You may also be able to claim a loss against other taxable income such as salary or dividends.
Tip 3: Use tax-free savings accounts (TFSA)
One option is to use tax-free savings accounts (TFSAs). If you have TFSA amounts that could be used to reduce the CGT liability, you can convert those funds into a lump sum and claim a loss against other income. This strategy is also known as “gifting” your assets to reduce your liability.
Tip 4: Claim a capital loss on capital gains If you sold some of your assets for profit, you may be able to claim a capital loss against any capital gain for the same asset. For example, if you bought $100,000 worth of shares at $1 per share and sold them three years later for $2 per share, you could claim a $300 capital loss ($2,000 x 3) against any capital gains in future years.
How to avoid Capital Gains Tax in the UK?
If you’re looking to avoid paying capital gains tax in the UK, here are a few tips to follow:
- Make sure you’re selling your assets within the correct timeframe – if you sell your assets before, they’ve been held for more than 12 months, you’ll generally be exempt from CGT.
- Keep track of your assets – make sure you keep accurate records of all the property, stock and investments that you own so that you can easily determine whether or not you’re liable for CGT.
- Avoid making large profits – if your total profits from selling assets increase by more than 20% in a twelve month period, you may be liable for CGT.
What is Taxable Income?
Capital gains tax is a tax on the increase in value of assets that a person owns. This means that if you sell an asset for more than you bought it for, you may have to pay capital gains tax. There are different rates of capital gains tax depending on your income level and how long you have owned the asset.
There are a few things to keep in mind if you want to avoid paying capital gains tax:
- First and foremost, make sure that all of your transactions are documented and recorded so that you can track your progress through the tax system. This will help ensure that you don’t fall into any traps and end up owing too much money in taxes.
- Secondly, try to avoid selling assets that you plan on using for at least one year. This will reduce the amount of taxable income that you will receive, and therefore the number of capital gains that you will have to pay.
What are Capital Gains?
There are two main types of capital gains tax in the UK:
- Income from capital gains is taxed at a rate of 20%.
- Dividends received from shares, unit trusts and other similar investments are taxed at a rate of 10%.
If you have taxable income above £11,850 (or £22,700 for those who are married or in a civil partnership), you will be liable for Capital Gains Tax (CGT).
Here are some tips to help you avoid paying too much Capital Gains Tax:
- Don’t sell your assets for less than you paid for them. If you sell your assets for less than their original value, you may have to pay CGT on the difference.
- Make sure your assets are properly registered with the HMRC. If your assets are not properly registered, you may have to pay CGT on the value of your assets even if you don’t sell them.
- Consider splitting your gains into different years if possible. This will reduce the amount of CGT payable on each gain. In some cases, this can actually result in a reduction in tax payable overall.
When Does Capital Gains Tax Apply?
Capital gains tax applies to any increase in the value of a property or investment that you have acquired over the course of the tax year. This means that if you have made an investment in, for example, stocks or shares, and the value of these has increased by more than the amount you paid for them, then you will be liable for capital gains tax.
There are a few things that can reduce or even eliminate your chances of having to pay capital gains tax on your investments:
- Don’t sell your shares or property until after they have increased in value:
- Don’t sell your shares or property for less than their original purchase price:
- Avoid making speculative investments where there is a high risk of loss:
- Make sure you fully understand your capital gains tax obligations before making any investments.
Summary of Avoiding and Evading Capital Gains Tax in the UK
If you are a resident of the UK, you may be subject to capital gains tax on the sale of assets that you have owned for more than 12 months. In order to avoid this tax, it is essential to understand the rules and to take appropriate steps to ensure that your transactions are correctly recorded and taxed. This article provides a summary of the key points you need to know about capital gains tax in the UK.
- What is Capital Gains Tax?
Capital gains tax is a tax levied on the increase in the value of assets owned by a resident of the UK over a period of 12 months or less. This tax is charged on any gain made on the sale of these assets, regardless of how long you have owned them. The rate of capital gains tax payable varies depending on your income level, but it can be as high as 20% in some cases.
- When Do You Pay Capital Gains Tax?
You generally pay capital gains tax when you sell an asset, although there are some exceptions to this rule. For example, if you sell an asset while you are still personally liable for its debt, or if you sell an asset which you’ve transferred to your spouse, partner or civil partner, you do not pay capital gains tax on the increase in value of that asset.
Conclusion
It’s that time of year again — taxes are coming! Whether you’re an individual or running a business, it’s important to keep up to date with the latest changes to the UK tax system so that you can avoid any unwanted capital gains tax bills. In this article, we’ll outline some of the key steps you need to take if you want to keep your taxable income as low as possible. Keep reading for tips on how to reduce your taxable income, whether you’re a sole trader or a small business owner.