How can I reduce my Capital Gains Tax Bill?

Latest figures from HM Revenue and Customs show that a record amount of Capital Gains Tax (CGT) was paid in the 2019/20 tax year. The total CGT payable was £9.9bn which was an increase of 3% from the 2018/19 tax year. CGT is payable when you make a gain on the sale or transfer of certain assets, but it’s important to remember that there are steps you can take to reduce or eliminate your CGT bill.

Firstly, use your annual allowance – this is currently £12,300 per tax year (£6,150 for trusts) and if it isn’t used in full, it can’t be carried forward to a new tax year. If your total taxable gain is above your annual allowance, you can deduct unused losses from previous tax years. If they reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.

Gains above the annual exemption are charged at 10% or 20% depending on your other income. As part of the Chancellor’s big tax freeze announced last year, the CGT allowance is frozen at this level until 2026.

Double your allowance

Every individual has their own CGT allowance, so it can make sense to transfer assets to a spouse or civil partner if they are in a lower tax bracket or haven’t used their allowance in full. This means that a couple could potentially realise tax-free capital gains worth up to £24,600. Such transfers are usually tax free.

Wrap it up

Don’t forget to use your Individual Savings Account (ISA) wrapper in full each year. Currently you can save £20,000 a year and no CGT is payable. Even if your ISA allowance is used up, rather than investing directly in shares and bonds, it makes sense to consider investing through collective funds which do the trading rather than you.

Reduce your taxable income

As the rate at which you pay CGT is dependent on your Income Tax band, reducing your taxable income can have a knock-on benefit for your CGT liability. You could do this by paying more into your pension or gifting to charity.

Sensible financial planning can help to reduce the amount of tax you pay and safeguard your wealth for the future. We can help – please get in touch.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The Financial Conduct Authority does not regulate tax planning.