What is Capital Gains Tax?
When you make a profit on the sale of an asset (although there are few exemptions), you will have to pay tax on it. HMRC emphasises that you need to pay tax on the profits and not on the proceeds of the sale.
If you own shares and you want to sell them when they have increased in value you will have to pay CGT on the profit that you will make from disposing them
1. Making use of the Annual Capital Gains Tax Allowance
Each individual is given an annual allowance of £12 300. If you sell your shares and you earn a profit which is £12 300 or less then you will not have to make any tax on it.
2. Splitting the sales over 2 years
Since you are not allowed to carry the Capital Gains Allowance to the next year, sometimes it is a good idea to spread the selling of your shares over 2 years, instead of selling the shares in 1 year. In this way you sell your shares without paying any Capital Gains Tax on the profits for upto £ 24, 600 in total.
3. Transferring the shares to your wife
Transferring the shares of a company to your spouse is tax free. This means that you can sell or transfer the shares to your wife. The profit that you will make will be free of Capital Gains Tax.
Transferring the shares that you own to your wife can be advantageous if you are a higher rate taxpayer and your wife is not. She either falls in the Basic rate taxpayer band or if she has no income at all she might have her unused annual personal allowance. If she is a basic rate taxpayer she will be paying tax at 7.5%. The dividend allowance for the couple will also increase, and so will the annual capital gains tax allowance when she is selling the assets, therefore reducing the overall tax.
4. Making use of the losses
If you made any loss during a tax year don't forget to offset it against the gains during that tax year. This will help you bring down the profit and the capital gains tax bill. You might consider selling the shares at a loss during a tax year in which you have made a gain if that reduces your overall tax bill. The losses can be carried forward to the next tax year and can be used against the future gains. You should report the losses within the 4 years of making the disposal. The loss is reported in the self assessment tax return.
You might need to hire an accountant to sort out the taxes for you. You might be in the position to claim other reliefs as well and reduce your capital gains tax bill. We at Taxaccolega will give you tax advice depending on your individual situation. Simply call us at 020 8127 0728 or drop us a message here and our expert team of accountants based in Croydon and South hall will be happy to help you.