How to Reduce Your Capital Gains Tax

Worried about Capital Gains Tax?

Are you worried about the Capital Gains Tax you’ll be charged this year? Unsure of whether Capital Gains Tax applies to you or not?

Read on to learn all about this tax and how you can legally reduce the amount you pay.

What is Capital Gains Tax?

This is a tax that is charged on the profit you make when you dispose of an asset that has increased in value since you obtained it. The tax only applies on the gain that you’ve made, not the entire amount that you receive for your asset.

Disposing of an asset could mean selling it, transferring it to another owner, swapping it for another item, or receiving an insurance payout for it.

How Much Can I Gain Before Capital Gains Tax?

The Capital Gains Tax allowance is how much you can make from your assets this year before you are charged capital gains tax. The allowance won’t change between 2020-21 and 2021-22. The limit will remain the same at £12,300.

What about if you own your assets alongside another person? Then, both of your allowances apply. This means you can make twice the profit before either of you will be charged Capital Gains Tax.

You are not allowed to carry your Capital Gains Tax allowance from one tax year to another.

What are CGT Rates?

CGT rates decide the amount that you’re charged when you exceed your Capital Gains Tax allowance. This amount depends on whether you’re a basic rate taxpayer or a higher/additional rate taxpayer. It also depends on whether you’re selling property or an asset.

  • If you’re a basic rate taxpayer, the CGT rate is 10% on assets and 18% on property.
  • If you’re a higher rate taxpayer, the CGT rate is 20% on assets and 28% on property.

If you have made enough capital gain to move you from a basic-rate taxpayer bracket to the higher rate, then your capital gain tax will be charged according to the higher rate.

What's Exempt from CGT?

You need to exceed a certain threshold of profit before your gains are taxed. Assets and property you might pay CGT on include a second property or valuables like jewellery or art.

However, some assets are exempt from CGT, such as:

  • The sale or transfer of private cars
  • Gifts to spouses or charity
  • The sale of your only or main home
  • Personal possessions worth less than £6,000
  • Wasting assets (possessions with a useful life of less than 50 years)
  • Financial products such as lottery winnings or premium bonds
  • Inheritance (although inheritance tax may still apply)

How Can I Reduce my CGT?

There are a few steps you can take to reduce the amount of CGT you’re expected to pay.

You might consider putting assets into joint ownership so that both of your CGT allowances are combined to cover it. Instead of enjoying £12,300 of gains tax-free, you’ll benefit from £24,600.

Invest in paintings or other collectables which can be sold piece-by-piece. The £6000 exemption could apply to these items.

You are not charged on the sale of your main home. If you and your partner are not married, you can choose a different main home each and enjoy tax relief on both.

If you’re buying a home to rent it out, live in it first. This can potentially reduce the amount of CGT due when you do sell it.

Sell your employee shares received through a SAYE option scheme in several tranches rather than all at once. This will spread the gains you receive over multiple tax years.

How Can Prosperity Wealth Help?

If you’re concerned that you’ll be charged capital gains tax this year, consult the experts at Prosperity Wealth. We can help you work out exactly how much you will be owed, which can be complex if you’re not closely familiar with the system.

We can also advise you if there are any steps you can take to reduce the amount of Capital Gains Tax that you owe. Different routes may be available to you depending on your circumstances, and unless you understand the rules and regulations of Capital Gains Tax law, you may not be aware of them.

What about if you’re planning to sell a valuable asset sometime in the future? This is the perfect time to ask for our advice. At this early stage, we may be able to help you avoid Capital Gains Tax entirely in just a few easy steps.


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