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Capital gains tax (CGT) is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive. In UK, CGT applies to the disposal of any asset, including shares and funds held in investment accounts. The amount of CGT you pay depends on your taxable gains and income in a tax year. For the 2022/23 tax year, the CGT rates are:
- 10% on gains that fall within the basic rate band
- 20% on gains that fall within the higher and additional rate bands
There are several ways to legally minimize your CGT when disposing of shares and assets held in investment accounts:
Use Allowances: Everyone has an annual CGT exemption allowance of £12,300 in the 2022/23 tax year. Any capital gains below this amount are CGT-free. If you’re married, or in a civil partnership, you can potentially double this to £24,600 by using both your allowances. Spreading disposals across tax years to maximize the use of the allowance is a good strategy.
Make Use of Tax-Free Accounts: Stocks, shares ISAs, and pensions allow you to buy, hold and sell investments free of CGT. The 2022/23 ISA allowance is £20,000, with a maximum lifetime pension allowance of £1,073,100. Maxing out contributions to these tax-free vehicles can significantly reduce your CGT bill.
Offset Losses: Capital losses can offset capital gains in the same tax year. You can carry leftover losses to offset future gains if your losses exceed your gains. Planning disposals to realize losses in some holdings can minimize CGT on the disposal of other assets showing a profit.
Make Charitable Donations: If you donate shares to charity instead of selling them, you won’t have to pay CGT, and the charity can claim gift aid. This increases the value of your donation.
Transfer Assets to Your Spouse Assets can be transferred between spouses at no gain/no loss, allowing you to use your partner’s CGT allowance or lower tax rates. This doesn’t apply to gifts between civil partners.
Invest Through a Company: If you hold investments through a company, assets can be sold at the company level, where the CGT rate is just 19%. This requires careful setup and planning to remain compliant.
Claim Entrepreneurs’ Relief This reduces the CGT rate to 10% on up to £1 million of qualifying gains made during your lifetime. This applies to disposals of qualifying business assets by business owners.
Defer Your Gains: If you dispose of an asset and buy another of the “same kind” within a specified period, you can defer paying CGT until the replacement asset is sold. This rollover relief applies to certain share disposals.
In summary, with careful planning and utilizing the variety of allowances and reliefs available, UK investors can minimize their CGT liabilities on shares and investments in a compliant way. Seeking tax advice can help develop an optimal long-term strategy aligned with your financial objectives. But always take care to remain compliant with HMRC regulations.
For capital gains tax resolution or compliance, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.