If you have assets that could give rise to capital gains tax (CGT) when sold then here are some points to consider.
- Each individual has an annual exemption of £8,500 for CGT purposes. Review your chargeable assets and consider selling before 6 April 2006 to utilise the exemption. Note that husband and wife both have their own annual exemption. A transfer of assets between them may enable them both fully to use this. Bed and breakfasting (sale and purchase) of shares is no longer effective. However sale by one spouse and repurchase by the other, or sale outside an ISA and repurchase inside, can achieve the same effect. This can be done either to utilise the annual exemption or to establish a capital loss to set against gains.
- Children also have their own annual exemption and this may be utilised by investing for capital growth.
- Traded or ‘second hand’ endowment policies (SHEPs) can also produce gains to utilise the annual exemption. An unwanted policy is acquired and paid to maturity. On maturity, the proceeds payable less the acquisition cost and premiums paid creates a capital gain. Careful planning could lead to £8,500 of gain per family member being realised every year tax-free.
- If a planned disposal is likely to give rise to a gain in excess of the annual exemption and therefore a CGT liability, then it may be better to defer it until after 5 April 2006 as this will delay the payment of CGT. The due date will be deferred from 31 January 2007 (for 2005/06) to 31 January 2008 (for 2006/07).
- Deferral of a gain to a later date may also give a higher rate of taper relief. This can make a very significant difference to the ultimate chargeable gain. Capital gains can be deferred by investing via the EIS scheme.
- If you have two homes then consider making an election so that future gains on your ‘main residence’ are exempt from CGT. Talk to us if this is relevant for you.
- Remember that capital losses can be established by making a claim where assets no longer have any value - a ‘negligible value’ claim.
