At a glance
- Selling an asset may mean you need to pay Capital Gains Tax (CGT) on any gain you make.
- There are several ways you can reduce this bill, including splitting or giving assets to your spouse or civil partner.
- Whether you give away assets to your other half or do something entirely different, we can help you manage your finances as tax-efficiently as possible.
Thinking of selling your second property? Cashing in a share portfolio? When you sell an asset that’s gone up in value since you bought it, you may have to pay Capital Gains Tax (CGT) on your profits.
One possible way of reducing this tax bill, is by giving an asset away to your spouse or civil partner or splitting it with them. By doing this, both of you are able to use your individual CGT allowance and reduce the amount of tax payable overall. Such a transfer must be on an outright and unconditional basis.
Read on to find out how splitting your assets with a spouse or civil partner, along with other strategies, can help you get on top of CGT.
Who pays Capital Gains Tax?
CGT is a tax payable on the profit or gain you make when you sell something that’s increased in value since you acquired it. It’s not a tax on the whole amount, just on the profit you make. You may need to pay CGT if you sell or gift certain assets and the overall profit you make is over the annual CGT allowance.
Assets that you might pay CGT on include shares that aren’t part of an ISA or pension (both CGT exempt); business assets; personal possessions worth more than £3,000; and property that isn’t your main home. That could include a second home, a buy-to-let property, or even a house or room that’s only occasionally occupied.
How much Capital Gains Tax will I have to pay?
How much CGT you pay depends on your income and the asset you’re selling or giving away.
If you are a basic-rate taxpayer and remain so after adding the gain to your income, you’ll pay 18% CGT for residential property and 10% if you’re disposing of other assets. However, if your gains tip you into the higher-rate tax threshold, you may pay CGT at both basic and higher rates – see below.
If you pay the higher or additional rate of income tax and you’re selling residential property, you’ll pay 24% CGT on your gains above the annual CGT allowance. If you’re selling a different type of asset, such as investments or high value items, you’ll pay 20% CGT (this doesn’t apply to the main family residence).
If you’re selling all or part of your trading business – and you’ve had the business for at least two years – you may be eligible for a special rate of 10%. This is known as Business Asset Disposal Relief. Our Business Advisory Services can guide you through this important stage in the lifecycle of your business.
What is the Capital Gains Tax allowance?
The CGT allowance for 2024/25 is £3,000 per individual. As far as CGT is concerned, if you are living with a spouse or a civil partner, you each currently have a £3,000 tax-free annual allowance. £3,000 is the maximum profit you can make on the sale of chargeable assets this tax year before you have to pay CGT.
You get a new CGT allowance each year. And be aware that if you don’t use it one year you can’t carry it forward.
Can giving assets to my spouse or civil partner cut our CGT bill?
If the sale of an asset is going to take you over your annual CGT allowance and land you with a tax bill, you can give the asset to your spouse or civil partner – so long as they haven’t already used up their allowance.
If they then sell it, they can use their own annual allowance. So you’ll double the amount of allowance you’re eligible for, on the sale of the same asset. You may reduce or avoid paying CGT altogether. Remember though that such transfers must be on an outright and unconditional basis.
Also, this only applies to individuals who are married, in a civil partnership and living together. If you are living together, even in a long-term relationship, but not married or in a civil partnership and you give an asset to your partner, there may be CGT to pay.
Be aware that, once you’ve given that asset away, your spouse or civil partner will become its legal owner. If, for any reason, your relationship breaks down and you separate or divorce, the rules are different and can be quite complex so advice will be essential.
Are there other ways to cut my CGT bill?
Splitting your assets isn’t your only option to reduce CGT. You could:
- Stagger the sale of assets over several tax years to make the most of using your CGT allowance over several years. You could sell part of a share portfolio on 3 April and the rest on 6 April to take advantage of two years’ CGT allowance.
- Offset any losses you’ve made on other assets. So, if you have a share portfolio or family heirloom that sold at a loss, for example, you can use that to reduce the taxable gain on another asset you’re selling, such as property. Special rules apply when it comes to using losses so be sure to seek advice.
- Invest your assets in an ISA or pension – sheltering them from tax. You might want to consider a Bed and ISA – this is where you sell shares (the Bed part) and buy them back within an ISA wrapper to shelter future gains. Always speak to a financial adviser if you’re considering this option, to make sure it’s the right choice for you.
How we can help with CGT
CGT is a complicated area of tax-planning and can trip many of us up. But depending on your circumstances and over the long term, it could still work out to be more tax efficient than drawing down from other assets, such as your pension.
By talking to us and considering all your assets together – rather than in isolation – you’ll be able to build a financial plan for you and your family. We’ll help you work out which assets you need to sell and when, or which assets you may wish to give away.
Whatever you decide to do, we’ll help you make the most tax-efficient choices you can and take advantage of all available reliefs and allowances. That way, you’ll pay the right amount of tax – and no more.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.
SJP Approved 05/02/2024