The UK’s overall CGT bill hit an “all-time high” of £15.4billion last year, according to UHY Hacker Young. This is 27 percent higher than in 2021 and it could be a warning sign to those who pay the levy that now may be time to find a way to reduce their bill.
What is capital gains tax?
This is a tax charged on the profit someone makes when they dispose of an asset they own which has increased in value.
Disposing of an asset includes either selling it, gifting it, transferring it to someone else, swapping it for something else or getting compensation for the item.
Any financial gain an individual makes from this hiked value is taxed, not the amount of money they make from disposing of it.
When someone makes a gain from selling their property, they will pay an 18 percent CGT rate as a basic-rate taxpayer, or 28 percent if they pay a higher tax rate.
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Phil Kinzett-Evans, a partner at UHY Ross Brooke, highlighted why people are paying more capital gains tax than ever before.
He explained: “Soaring interest rates and an increase in taxes on BTL investment are driving landlords out of the market.
“The UK must be wary that increasing the tax burden too much on buy-to-let landlords could disincentivise investment in the UK property market.
“This would drive down the supply of rental properties and drive up rents at a time when there is already a clear shortage of rental housing.”
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How to reduce a CGT bill
One of the ways people can lessen their liability for capital gains tax is by making the most of their savings allowances.
Those attempting to avoid paying CGT can place up to £20,000 into their own ISA every year using the proceeds from the sale of their assets.
Furthermore, they can also invest up to £40,000 for their pension depending on their individual circumstances.
While the initial sale would be subject to an individual’s capital gains tax, topping up an unused pension or ISA allowance with this money will subsequently mean a taxpayer’s investments are transferred to a more tax-advantageous position.
On top of this, anyone who is married has the option to transfer their assets into their significant other’s name.
Alternatively, taxpayers looking to reduce their CGT bill can split their assets with their partner.
Doing so means that when an asset is sold both people use their annual allowance of £12,300, which reduces the amount of CGT they have to pay.
As well as this, taxpayers can separate the sale of assets, including shares in a portfolio, over a span of several years to avoid crossing over the allowance threshold.
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