WANT TO REDUCE YOUR CAPITAL GAINS TAX BILL?

If you are expecting to pay CGT at the new rate of 28% on all or part of a capital gain on a sale in the current tax year, there may be scope to reduce the rate. This involves making a contribution to your pension scheme or a donation to a charity.

It works by reducing your taxable income for all purposes – including the rule that says your rate of CGT is found by adding the gain to your taxable income. If the latter does not exceed the basic rate band of £37,400, it means that some or all of the gain is taxed at 18% instead of 28%.

In addition, CGT annual exemptions are sometimes overlooked. They have always been worth considering towards the end of a tax year but the potential tax savings are now substantial and careful planning can be highly effective.

Specifically, for a married couple or civil partnership, it is worth up to £5,656 each tax year. The exemption is £10,100 x 2 = £20,200 at a rate of 28% = £5,656.

If the exemption will not ordinarily be used by each spouse or partner, it is worth looking at creating disposals by 5 April 2011, subject of course to the costs involved. The asset(s) sold can, if desired, be repurchased although there are special restrictions for quoted investments (even they can be avoided if the other party makes the repurchase).

Assets can be transferred between a married couple or civil partners without any CGT arising. Therefore, any gains made should be made by the right person, so as to utilise two annual exemptions instead of one.

For full details of how this could reduce your tax bill, contact us.