Capital gains is one of the key taxes investors face. On many assets, including properties and stocks and shares, it is levied on the profit made at the point of sale compared to the purchase price. There are, however, several legal and legitimate strategies you can use to reduce your overall bill. These include:
The first thing that reduces everyone’s tax bill, automatically, is of course the personal allowance. The chances are this is all used up already, but does your partner have any personal allowance to spare? If so, then handing some of your assets over to them will be an effective way of avoiding tax. Of course, this does not mean just taking their unused personal allowance for yourself but rather handing the assets over into their ownership. Even so, collectively this will leave the two of you with the same gross income and a smaller capital gains bill.
If you hold any other assets that have declined in value to the point that their worth is almost non-existent, you may be able to make a negligible value claim and this could potentially be a net tax benefit. This kind of claim essentially means declaring an asset worthless and, if HMRC agrees that its value is negligible, it will be treated as if you sold that asset for £0 (this being its current market value) and then repurchased it at the same rate. This gives you a recordable loss to offset against your capital gains bill, yet does not involve actually parting with ownership of the asset which you may hope will gain value again in the future. The loss may be recorded in the tax year you made the claim, or it may be recorded in any of the previous two tax years as long as HMRC agrees that the asset had already become negligible in value at the time in question.
Repurchasing (the Legal Way)
There was once a practice, now understandably banned, of selling assets that had appreciated in value, usually stocks and shares, and almost immediately repurchasing them for virtually the same price. This effectively secured a higher purchase price for tax purposes, reducing capital gains when the asset was sold for real. This practice, known as “bed and breakfasting,” is now illegal, but a related practice which has come to be known as “bed and spousing” remains an option at time of writing, albeit less powerful than it has been in the past. This involves selling stocks or shares which are then repurchased by your partner. Like handing assets over to your spouse to use their personal allowance, this does not improve your own tax situation but rather provides income to your spouse who will gain benefits that you would not. In some cases, “bed and spousing” will result in a net benefit for your collective finances even if not for your personal tax bill.