How to reduce CGT?
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You can minimize and reduce your Capital Gains Tax (CGT) by taking the following steps;
1. Use the annual capital gains tax allowance
You can reduce your CGT by using your CGT annual allowance. It is £12,300 in tax year 2022/23 meaning a married couple or civil partnership can make gains of £24,600 a year without any charge to tax.
2. Offset losses against gains
You can reduce your CGT by offsetting capital gains against brought forward capital losses. An investment sold at a loss can be offset against gains. If there are more losses than gains in a tax year, these can be carried forward to offset against future gains.
3. Sell when tax is paid at a lower rate
You can reduce your CGT by disposing off asset at a certain time or in a particular tax year. CGT is based on your rate of income tax. If this will fall in the future, perhaps due to retirement, you could consider delaying selling until then.
4. Transfer to spouse
You can reduce you CGT by transferring assets to your partners. Married couples or civil partners can usually transfer investments to one another without incurring CGT. This could be beneficial before selling an investment or if one partner has a lower tax rate.
5. Reduce taxable income
This may reduce the amount of CGT due. One of the easiest ways to do this is to fully use tax shelters such as an ISA – income from an ISA is free from UK tax. Paying pension contributions will also reduce your taxable income in the year of contribution and potentially reduce the rate of CGT you have to pay.
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