Pre Year End Tax Planning – Capital Gains Tax Allowances
As part of your tax planning in the run up to the new tax year on 6 April, consideration should be given to your Capital Gains Tax (CGT) position.
All individuals have an annual CGT allowance of £12,300 for the current tax year, which enables them to make capital gains on investments up to that amount tax free. Any gains in excess of the annual CGT allowance are taxed at either 10% or 20% unless the gains are attributed to the sale of residential property, in which case the gain would be taxed at 18% or 28%, depending on the individual’s level of income in the year in which the gain arises.
For trustees, the CGT annual exemption is currently £6,150 and any gains in excess of this are taxed at 20% or 28% if the sale is in respect of residential property.
The CGT annual exemption cannot be carried forward, meaning if it is not used it is lost. However, transfers between spouses are currently exempt so you may consider transferring assets between husband and wife prior to the asset sale as this could result in significant tax savings by effectively doubling the CGT exemption.
Capital losses are offset against capital gains in the same year, if you have a loss making asset, it may be worthwhile selling the asset in the year in which you are going to realise a capital gain in excess of the annual exemption. Any unrelieved capital losses are carried indefinitely for use against gains in future years.
It is important to keep track of capital losses to ensure that these are not lost. A capital loss claim must be claimed no later than four years after the end of the tax year that you dispose of the asset. The exception to this is for losses made before 5 April 1996, which you can still claim for. You must deduct these after any more recent losses.