Tax Saving Tip - No.1
Posted 18-02-2009 at 12:15 AM by Ray Stewart
Welcome to the first in a series of posts detailing tax saving tips.
This first post is about using, or losing, your annual capital gains tax allowance. Presently standing at £9,200 the annual cgt allowance is one of those that you will lose if don’t fully utilize it each year.
Yes, even in these difficult recessionary times, there are people who own assets generating capital profits. These assets can quite legally be manipulated to force a chargeable gain to be realized and use the annual exemption to the full. Why would you want to do this - well, a 40% tax payer who lets the annual cgt allowance slip away unused is actually wasting £3,680 in hard cash tax savings.
The easiest assets to use to ensure all of this tax free allowance is used are shares.
The simple method is to sell enough shares from your portfolio to realize a capital gain as close to the annual exemption as possible. Your spouse can then rebuy the same shares a few days later.
That’s it. The result of this bed and breakfasting as the professionals call it, is to realize the gain tax free and yet, as a couple, you still keep the same portfolio of shares.
A few years back people used to sell some shares around the end of the tax year (5th April) and then buy them back themselves early in the new tax year for a similar effect. However, the tax rules no longer allow this. A different individual (spouse) can legally buy them, but you cannot buy back your own shares without invoking rules that will cancel out your tax saving.
I acknowledge there will be some dealing costs with this tip, but they are negligable compared to the potential tax saving available.
~Ray Stewart
This first post is about using, or losing, your annual capital gains tax allowance. Presently standing at £9,200 the annual cgt allowance is one of those that you will lose if don’t fully utilize it each year.
Yes, even in these difficult recessionary times, there are people who own assets generating capital profits. These assets can quite legally be manipulated to force a chargeable gain to be realized and use the annual exemption to the full. Why would you want to do this - well, a 40% tax payer who lets the annual cgt allowance slip away unused is actually wasting £3,680 in hard cash tax savings.
The easiest assets to use to ensure all of this tax free allowance is used are shares.
The simple method is to sell enough shares from your portfolio to realize a capital gain as close to the annual exemption as possible. Your spouse can then rebuy the same shares a few days later.
That’s it. The result of this bed and breakfasting as the professionals call it, is to realize the gain tax free and yet, as a couple, you still keep the same portfolio of shares.
A few years back people used to sell some shares around the end of the tax year (5th April) and then buy them back themselves early in the new tax year for a similar effect. However, the tax rules no longer allow this. A different individual (spouse) can legally buy them, but you cannot buy back your own shares without invoking rules that will cancel out your tax saving.
I acknowledge there will be some dealing costs with this tip, but they are negligable compared to the potential tax saving available.
~Ray Stewart
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