You are here: Home - Investing - Getting Started - How to -

HMRC rakes in £6.9bn in Capital Gains Tax: how to save

0
Written by: Paloma Kubiak
27/10/2016
Statistics from HM Revenue & Customs revealed individuals were hit with £6.9bn in Capital Gains Tax (CGT) charges in 2014/15, up a staggering 25% from the year earlier.

Preliminary data from HMRC has revealed that 242,000 taxpayers had to pay the tax, showing both an increase in numbers affected (up 13%) and the amount paid (up from £5.5bn) to the government in the 2014/15 tax year.

What is Capital Gains Tax and how much is charged?

If you sell or transfer certain assets such as investments that aren’t held in a pension fund or an ISA, you could be liable for CGT on the profits earned. The same applies to buy-to-let property and it may also be charged on valuable belongings such as artworks, jewellery or furniture, depending on the value. It applies to individuals, trusts and representatives of deceased people.

There have been a lot of changes to CGT recently, but it’s currently levied at the rate of 10% if you’re a basic rate taxpayer, and 20% for higher rate taxpayers (before April 2016, the rates were 18% and 28% respectively. These cuts don’t apply to disposals from buy-to-let property or second homes though which remain at the original rates.

However, not all gains are taxed. The first £11,100 of any gains in the current tax year is tax-free. If your spouse is not using their allowance, you can transfer assets to them, meaning you can effectively double the allowance to £22,200.

CGT on the up

Many people believe CGT is a tax paid by the richest people in society, but the government actually raises more from this than inheritance tax (IHT).

It said the year-on-year increase was mainly driven by growth in the equities and property markets both in terms of higher transactions and house prices.

Furthermore, the percentage of CGT derived from all taxpayers with gains above £500,000 (including those with gains over £1m), increased from 65% in 2013-14 to 67% in 2014-15 to 67%.

And for 3% of affected individuals, they made gains of more than £1m.

The proportion of CGT from taxpayers with gains below £500,000 has declined from 37% in 2010-11 to 33% in 2014-15.

However, despite most of the government gains coming from the higher ranges, the largest proportion of CGT taxpayers made modest gains in the range of £10,000 to £25,000.

Regionally, those living in London and the South East contributed more to the government coffers, while those in Northern Ireland paid the least.

‘Buy to regret’

Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “Investors ignore the impact of CGT on their investments at their peril. The increase in the ISA allowance from £15,240 to £20,000 in April gives investors more scope to shelter their investments from tax.

“Unfortunately it looks more like it will be buy to regret for those investing in property, with taxes rising, while shares and funds see tax improvements.

“Taxes can distract investors from making good decisions and taking profits at the right time. The recent cut in CGT helps share and fund investors make better decisions.”

Top tips to save CGT

Cox lists these five tips to help you cut on your CGT bill:

1) Use the annual exemption

A married couple (or those in a registered civil partnership) can make gains of £44,400 in this tax year and next without any charge to tax. Investments can normally be transferred between spouses without an immediate tax charge to make full use of two allowances. The annual exemption for CGT cannot be carried forward or back into other tax years, and is therefore lost if not used.

2) Offset losses against gains

If an investment is sold at a loss, the loss must be offset against any gains made in the same tax year. If there are more losses than gains, the net losses can be carried forward indefinitely to set against future gains in excess of the annual exemption, provided those losses are registered with HMRC on the individual’s tax return.

3) Transferring assets before selling

Married couples (or those in a registered civil partnership) where one spouse pays tax at a lower rate than the other, may have the option to transfer investments into the other’s name before selling to lower the rate of CGT paid.

4) Reduce taxable income

The rate of CGT is now charged based on the rate of income tax paid. Therefore lowering taxable income in any one year could reduce the CGT rate from 20% to 10%. Reducing taxable income can be done in a number of ways: waiting for retirement and a change from earnings to pension income; the strategic limiting of income withdrawals from a flexible access drawdown; deferring the state pension; greater use of ISA (income from ISA does not count towards taxable income calculation); or transferring taxable income bearing assets such as cash deposits to a lower earning spouse.

5) Never sell

Providing there is no disposal, gains and their liability to tax can be deferred indefinitely. Since CGT is washed out on death, it is a tax that can be avoided altogether. This becomes especially useful for IHT planning where the assets qualify for IHT relief under Business Property Relief, e.g. a portfolio of qualifying AIM stocks or unquoted companies held for two years or more.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

After an award-winning health insurance provider?

Winner of best online health care provider in the YourMoney.com Awards 2015

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
shutterstock_151789451
The stocks set to benefit from the Heathrow expansion

Airliners, construction companies and retailers could all be attractive investment opportunities after the government finally delivered the news this week...

Close