Are you efficiently utilising your annual Capital Gains Tax Exemption?
The annual capital gains tax exemption for 2014/15 is £11,000. This means that any capital gain less than or equal to £11,000 is exempt from Capital Gains Tax. However this allowance could not be carried forwarded.
I will now explain with an example how to efficiently use your annual CGT exemption.
You are a strong believer in investing in shares and have a significant shares portfolio. You are also a higher rate tax payer, which means any disposal of shares, over annual CGT, will attract a capital gains tax at 28%. You now want to sell your entire shares portfolio that could result in a gain of £54,000. The capital gains tax on it without any tax planning will be £12,040.
However you chose to discuss this beforehand with your accountant, who advised you to sell enough shares, every year, to only realise a gain of £11,000 per year (or realise the gain equivalent to annual CGT exemption for the future years if different than £11,000). This means that you could still have your gain of £54,000 spread over five years but saved yourself a massive sum of £12,040.
Gain of £54,500.
Without tax planning – Capital Gains Tax payable £12,040 – Happy Tax man.
Tax planning – Capital Gains Tax payable £0 – Happy You!
Who would you rather please?
Please note: This doesn’t not constitute as tax advice. Professional advice must be sought before any tax planning.
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