When you sell a valuable asset, you may have to pay Capital Gains Tax (CGT) on your profits.
One possible way of reducing, even avoiding this tax bill is to give an asset to your partner, or split it with them. By doing this, both of you are able to use your individual CGT allowance and reduce the amount of tax payable overall.
How Much Is CGT
How much CGT you pay depends on your income and the asset you’re selling.
If you pay the higher or additional rate of income tax, CGT is charged at 28% on your gains above the annual CGT allowance from residential property and 20% on gains from all other chargeable assets.
It’s a bit more complicated if you pay basic-rate tax. CGT is charged at 18% and 10% respectively; however, if your gains take you into the higher-rate tax threshold, you may pay tax at both rates.
Certain business assets may also be eligible for a special rate of 10%. This is known as Business Asset Disposal Relief.
It’s important to note that the tax is only charged on the gain that you’ve made on the asset, not its total value.
Who Has To Pay CGT
CGT may be payable when you sell certain assets and your gains are over the annual CGT allowance.
So-called ‘chargeable assets’ include shares that aren’t held in a tax wrapper such as an ISA or pension; business assets; personal possessions worth more than £6,000; and property that isn’t your main home, which could be a holiday home, or property that you rent out.
CGT Tax Allowance
The CGT allowance for 2022/23 is £12,300. This is the amount of profit you can make on the sale of chargeable assets this tax year before you have to pay CGT.
You get a new CGT allowance each year. However, if you don’t use it in one year, it cannot be carried over to the following year.
Cut CGT By Giving To Your Partner
If the sale of an asset is going to take you over your £12,300 CGT allowance and land you with a tax bill, you can give the asset to your partner assuming their allowance is still available. They can then sell it and use their annual allowance so you can reduce or avoid paying CGT altogether.
For example, if you have shares that are now worth £17,000 more than when you bought them, selling them would take you over your CGT allowance. Instead, you could give some shares to your partner, who could then sell them. This means the amount gained is less than your individual allowances and won’t be subject to tax.
To ensure you are managing your CGT efficiently, talk to one of our FCA authorised wealth managers by arranging a Discovery Call [Here]
This article is for informational purpose only. It does not constitute finacial, tax or legal advice, nor is it a recommendation to buy, sell or hold any investment. Past performance is not a guide to the future, investments rise and fall so investors could make a loss. No view is given on the present, future value or price of any investment and investors should form their own view on any proposed investment.