Reducing Capital Gains Tax (CGT) Bills

Everyone has a CGT annual exemption of £12,300 for 2022/2023. This is wasted if you don’t make capital gains in the tax year, as it can’t be carried forward. In 2023/2024 the annual exemption will be £6,000 and in 2024/2025 it will be cut to £3,000.

If you are planning to dispose of assets that will create capital gains, you can save tax if the disposals are spread over several tax years, but you need to consider the reducing amounts of the annual exemption that will be available.

If the asset must be sold in one go, you could reinvest part or all of the gain in Enterprise Investment Scheme (EIS) shares, but you must be prepared to take a risk. This will defer the gain until the EIS shares are sold. You can sell sufficient EIS shares in later years, so the that the gains chargeable are covered by your annual exemptions.

Gifts to your spouse or civil partner don’t create immediate taxable gains, as the recipient takes over the transferor’s CGT cost. You can use this transfer between spouses to share the ownership of a property, and hence the gain, and thus use two annual exemptions in one tax year on eventual disposal of the asset.

When you give a valuable asset to any other close relative, the disposal is treated like a sale at market value and the deemed gain is taxable. However, where certain assets (e.g. family trading company shares or agricultural property) are given to other family members, a capital gain may be avoided if an appropriate ‘gift relief’ claim is jointly made. This will lead to the recipient having a bigger capital gain on eventual disposal of the asset than would otherwise have been the case.

You should always take specific legal advice when giving away land or buildings, or a share in such property.  Land and Buildings Transaction Tax (or Stamp Duty Land Tax in England or Land Transaction Tax in Wales) may be payable if the property is mortgaged.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.