CGT Planning – Basic Steps

CGT Planning – Basic Steps
Capital gains tax (CGT) is normally paid when an item is either sold or given away. It is usually paid on profits made by selling various types of assets including properties (but generally not a main residence), stocks and shares, paintings, and other works of art, but it may also be payable in certain circumstances when a gift is made.

Some assets are exempt from CGT, including assets held in an Individual Savings Account (ISA), betting, lottery, or pools winnings, cash held in sterling, and jewellery, antiques, or other personal effects that are individually worth £6,000 or less.

Minimising your CGT bill

There are several basic ways in which a liability to CGT can be reduced.

Annual exemptions: Most people are entitled to an annual exemption (£10,600 for 2011/12), which means that no CGT is payable on gains up to that amount each year.

 Spouses and civil partners also have an annual exemption, so for jointly held assets, there is scope for exempting £21,200 (for 2011/12) worth of gains. The annual exemption is, however, good only for the current tax year, so if you are planning to make multiple disposals, you may want to consider the timing of sales between two or more tax years to use up as much and as many annual exemptions as possible.

Expenses: CGT is paid on net gains (usually proceeds less the cost of the asset and any other allowable expenses). Therefore, costs such as stockbroker commissions and legal expenses connected with property or share purchases or sales, can generally be deducted.

Entrepreneurs’ relief:  If you’ve been running your business for at least one year you should be entitled to relief if you dispose of the business (or part of it), or if you sell your business assets when you stop trading. From 6 April 2011, the relief is subject to a maximum lifetime limit of £10 million, so if you start and stop several businesses throughout your working life, you will need to keep track of your gains.

Loss relief: Losses arising on the sale of assets can generally be offset against any other gains made in the same tax year or in the future. A strict order applies for setting-off losses. Losses arising in the tax year are off set against any other chargeable gains for the same year. All losses for the year are deducted, even if this results in chargeable gains after losses being below the level of the annual exempt amount. If allowable losses arising in the tax year are greater than the total chargeable gains for the year, the excess losses can be carried forward and deducted from chargeable gains in future years.

Practical Tip

If you sell or give an asset to your husband or wife or your civil partner, while you’re legally married and living together, CGT doesn’t apply – transactions between spouses and civil partners are on a no gain (or loss) basis. However, if your spouse or partner later sells the asset, (s)he may have to pay CGT at that time on the gain you made while you had it, as well as any gain during his or her period of ownership. (S)he needs to know how much you originally paid for the asset or the value of it when you first acquired it.


By Sarah Laing