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Making a capital gain is usually good news – but it can also come with a hefty tax bill. So, whether you are selling all, or part, of your business, or some other assets (for example property or shares) it’s important to plan for a capital gain in order to minimise the tax burden. Carol Cheesman of Cheesmans Accountants offers seven ways to reduce your Capital Gains Tax (CGT):
1. Utilising the annual exemption
The annual exemption, which is £10,600 for the 2012-13 tax year and £10,900 for the 2013-14 tax year, cannot be carried forward if unused and so should be used each year, if appropriate, to crystallise gains on investments. Remember though, that same year gains and losses have to be merged before the annual exemption is applied.
Spouses and civil partners are entitled to their own annual exemptions and these can be fully utilised by making a transfer to a spouse or civil partner – but be sure to leave a reasonable interval between the transactions and specifying that the transfer is absolute and unconditional.
2. Utilising losses
It may be beneficial, particularly where there are current year gains taxable at the higher rate of 28%, to crystallise any investments standing at a loss. The set off of losses against same year gains cannot be restricted and so any potential wastage of the annual exemption should be considered.
3. Claim capital losses
A capital loss must be claimed within four years of the end of the tax year in which it occurred for relief to be given. The loss claimed can subsequently be carried forward indefinitely.
4. Relieve capital losses against income where possible
Capital losses realised in respect of unquoted shares can, in some cases, be relieved against income. Relief must be claimed within 12 months of 31 January following the end of the relevant year of assessment.
5. Deferring disposals
Deferring the sale of assets until after the end of the tax year should be considered if the annual exemption for the current year has already been used. This will utilise the 2012-13 annual exemption and defer the payment of any capital gains tax due by 12 months until 31 January 2014.
6. Bed and spousing
The practice of “bed and breakfasting”, whereby a person sold stocks or shares and then repurchased them shortly afterwards to secure a higher acquisition cost, has for many years been negated by the rule requiring a disposal to be matched with any acquisition of securities of the same class in the same company in the next 30 days. This only applies to a repurchase by the same person, however, so a spouse or civil partner can repurchase the shares without this rule being applied.
7. Negligible value claims
A negligible value claim can be made where an asset becomes worthless. The loss can be treated as arising in the tax year in which the negligible value claim is made or as arising in any of the two tax years immediately preceding the claim, provided HM Revenue & Customs are satisfied that the asset was of negligible value in those two years.
By planning before you make a capital gain you can limit your tax liability but it is important to plan in advance and not leave it until the last minute.
The information in this article should not be used as a substitute to obtaining professional advice. You should always discuss individual circumstances with an Accountant.