It seems a long time ago, but on 22nd June 2010 the rate at which capital gains tax (CGT) is payable changed to be dependent on the rate of income tax that the taxpayer now suffers. Capital gains will be added to the individual’s taxable income and treated as the highest part of taxable income. To the extent that the total of taxable income and net gains keeps the individual a basic rate taxpayer, the capital gains tax will suffer CGT at 18%. However, if the capital gains cause the taxpayer to exceed the higher rate tax threshold, the excess will be taxed at 28%.
There are a number of ways in which CGT can be reduced by planning. Those planning routes have increased because of the changes to the rules on the rates of CGT. Four very effective forms of planning are:
- Investors should use their CGT annual exemption (or lose it!)
- For married couples to use independent taxation planning strategies. It makes sense for an investor who is a higher rate taxpayer to transfer assets to his / her spouse’s name to utilise that spouse’s annual exemption, and even makes even more sense if the spouse pays tax at a lower rate.
- For those approaching or paying higher rate income tax to take action so as to reduce the tax rate that applies to a gain. This can be achieved by payment of a pension contribution to increase the basic rate tax threshold.
- To use loss strategies, offsetting losses on one asset against gains on another.
