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capital gains tax

Capital gains tax is something which is liable for anyone who owns more than one property which is not their principle place of residence. Every year a tax free capital gains tax allowance is set for everyone who is liable to pay capital gains tax on their property. In 2012/13 this was set at £10,600 meaning that you were only liable to pay capital gains tax on the profit made after this amount. It is also important to remember that your earnings may affect the amount of capital gains tax you are liable for. If you are a basic rate taxpayer you will only be liable for 18% of the gains you make on your property, however a high rate taxpayer will be liable for 28%. To find out if you are liable as a high rate taxpayer, you need to add together your net gains and any other income to check if they exceed the higher rate tax threshold which in the 2012/13 tax year was £34,371. There are ways to avoid paying capital gains tax at the higher rate of 28% if you minimise your net gains or reduce your other annual income.

To do this you can do one of many things. You can begin by spreading your gains of two or more tax years, so this averages out at a lower combined income for one tax year. You can also offset your losses against any gains, deducting any losses from profit made. It is also possible to go back as far as four years of losses which can be offset against the current tax year. If you have a partner, you can gift your assets to them, so they can use their yearly capital gains allowance to minimise your liability of capital gains tax as a couple. Another very popular things to consider, is investing your money in an Individual Savings Account (ISA). Any money within an ISA is protected from capital gains tax, however there is a limit to how much you can put into an ISA annually. This is a good way of earning interest whilst avoiding paying any capital gains tax on your money.

Investing your money in other ways can also help to reduce the capital gains tax payable, and in some cases like investing in programmes that provide funding for small businesses, you can reclaim some of the capital gains tax already paid. You can also save up to £1,195 in income tax if you swap some of your salary for childcare vouchers through your workplace. Childcare vouchers therefore lower your taxable income and enable you to reduce your capital gains.

Whilst many of these methods are a good way of managing your money and avoiding your liability to pay capital gains tax, it is important not to be tempted to sell any of your assets without declaring any of these gains to HMRC, otherwise you could be heavily prosecuted. Avoiding tax is perfectly legal if done in the right way, but tax evasion is illegal, so be very careful and if you are unsure then seek financial advice before it’s too late.

by Cormac Henderson

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