How to Legally Avoid Capital Gains Tax in the UK: A Comprehensive Guide

Capital gains tax (CGT) is a tax on the profit you make when you sell an asset that has increased in value. It’s important to be aware of CGT if you’re planning to sell any assets, as you could end up owing a significant amount of tax if you’re not careful.

The good news is that there are a number of ways to avoid or reduce your CGT liability. In this guide, we’ll explore six of the most effective methods.

Everyone has a tax-free allowance for capital gains each year. For the 2023/24 tax year, the allowance is £12,300. This means that you can sell assets for up to £12,300 in profit without paying any CGT.

It’s important to make sure that you use your full allowance each year, as it cannot be carried forward to the next tax year. If you don’t use your full allowance in one year, you will lose it.

2. Make Use of Tax-Free Wrappers

One of the best ways to avoid CGT is to hold your investments in a tax-free wrapper. There are two main types of tax-free wrappers: ISAs and pensions.

• ISAs (Individual Savings Accounts) allow you to invest up to £20,000 each year without paying any tax on the gains. There are a number of different types of ISAs, including cash ISAs, stocks and shares ISAs, and innovative finance ISAs.
• Pensions allow you to save for your retirement in a tax-efficient way. You can contribute up to £40,000 each year to a pension, and the money will grow tax-free until you retire. When you retire, you can withdraw your pension savings as a lump sum or as an income.

3. Enterprise Investment Schemes

Enterprise Investment Schemes (EISs) are a government initiative designed to encourage investment in small businesses. If you invest in an EIS, you can defer paying CGT on the gains you make until you sell your investment.

EISs are a high-risk investment, but they can also be very rewarding. If you invest in a successful EIS, you could make a significant profit.

4. Transfer Assets to Husband, Wife, or Civil Partner

In most cases, you can transfer assets to your husband, wife, or civil partner without paying any CGT. This can be a useful way to reduce your CGT liability if you’re planning to sell an asset that has increased in value.

However, it’s important to be aware that your spouse or civil partner may be liable for CGT if they sell the asset in the future.

5. Claim for Losses

If you sell an asset for a loss, you can claim for the loss on your tax return. This will reduce your overall CGT liability.

You can claim for losses on any type of asset, including shares, property, and cryptocurrencies.

6. Private Residence Relief

Private residence relief is a tax break that allows you to sell your main home without paying any CGT. This relief is available to everyone, regardless of their income or wealth.

To qualify for private residence relief, you must have lived in the property as your main home for at least two years. You can also claim private residence relief on a property that you have let out, as long as you have lived in it for at least two years out of the last five years.

Conclusion

CGT is a complex tax, but there are a number of ways to avoid or reduce your liability. By following the tips in this guide, you can save yourself a significant amount of money.

It’s important to remember that CGT is a complex tax, and the rules can change frequently. If you’re unsure about how CGT applies to your situation, you should seek professional advice.