Capital Gains Tax is a tax on the gain or profit you make when you sell, give away or otherwise dispose of something. It applies to assets that you own, such as shares or property. There’s a tax-free allowance and some additional reliefs that may reduce your Capital Gains Tax bill.
You usually dispose of an asset when you cease to own it – for example if you:
- sell it
- give it away
- transfer it to someone else
- exchange it for something else
It’s the gain you make – not the amount of money you receive for the asset – that’s taxed.
I understand after speaking to you briefly that you are married. One of the steps that you should have considered was to put the investment property that was in your sole name into the ownership of your wife as well. If you had put her name on the property title at least a month before you sold it then you would have been able to claim two annual allowances…
You also need to consider what level of tax you will have to pay as the rates for capital gains tax vary, for 2013 they were:-
- 18 per cent and 28 per cent for individuals (the tax rate you use depends on the total amount of your taxable income and gains)
- 28 per cent for trustees or personal representatives
- 10 per cent for gains qualifying for Entrepreneurs’ Relief
With the amount of capital gain that you have made then I believe its worth mentioning the benefits of investing in an Enterprise Investment Scheme, as investing in EIS shares creates valuable capital gains tax savings.
Firstly, you can defer the tax due on any capital gain you have made on the disposal of any asset, by claiming to roll that gain into the value of the EIS shares you have acquired. The period in which you must acquire the EIS share is very generous – it starts one year before you make the gain and ends three years after that date. You can invest all or only part of the gain you have made. This allows you to leave some of the gain covered by your annual capital gains exemption (£10,900 for 2013/14), and thus be exempt from tax.
When you dispose of the EIS shares, the gain you have rolled into those shares must be taxed. However you may dispose of the EIS shares in tranches over several tax years. This spreads-out the taxation of gain, so only small parts are taxed in each year. This can reduce the rate of tax you pay on the gain down from 28% to 18%, or even to 0% if the gain is small enough to be covered by your annual exemption for the year.
Ray Best can help you protect your financial future. To find out more, simply click here!