Disclaimer: This article does not offer financial advice and shouldn’t be taken as such.
Have you sold, traded, transferred or gifted something you own for your business? If yes, then you’ve disposed of business assets.
If you’ve done so over a certain threshold, you may need to pay capital gains tax (CGT) on the assets.
Paying tax on something you’ve decided to let go can feel like a nuisance, especially as it increases bills, lowering your overall retained profit. But it’s essential to pay what you owe to avoid penalties.
Thankfully, you can do a few things to legally reduce your tax burden and save money. Read on to learn more.
This guide list the best capital gains tax tips to reduce your bill, including:
- Taking advantage of your CPT exemption
- Declaring losses to subtract from gains
- Transferring assets to a spouse or partner
- Giving assets to charity
- Opening an ISA investment
- Claiming gift hold
- Using Business Asset Disposal Relief
See also: Do limited companies pay capital gains tax?
7 best capital gains tax tips to lower your bill
It’s important to pay CGT to remain tax compliant for your business. But let’s go over a few tips that can lessen the blow.
Take advantage of your exemption
You only need to pay capital gains tax on any asset sales or disposal over £12,300 in value. It’s important to know this number, so you understand when you’ve reached the limit.
With the exemption in mind, you might choose to limit what you sell annually to stay beneath the limit and avoid CGT altogether. Alternatively, you can subtract this amount from your total gains to only pay tax on what you need to.
If you experienced allowable asset losses alongside gains, you could also use this to lower your bill. Typically, losses occur when you dispose of something for less than you paid for it because it lost worth.
Reporting these losses to the HMRC can subtract that amount from your overall taxable gains.
Plus, if you forgot to report losses from previous years, you can carry them over to the current tax year. As long as you disposed of the asset in the last four years, you’re allowed to claim it as a loss.
Transfer assets to your spouse or partner
Transferring your assets to your spouse or civil partner is another great capital gains tax tip. HMRC won’t tax this type of transfer, and it lets you continue to benefit from the asset.
When choosing this route, you must not have been separated or lived apart from your partner that tax year.
If your spouse or civil partner then sells the asset you transferred to them, they might still have to pay tax on it. The final amount will depend on the value of the asset at the time you gave it to them and its current worth.
Give assets to charity
Also, consider donating assets to charity to pay less CGT.
Like transferring to spouses, you don’t need to pay capital gains tax on assets you give to charity. Doing this can reduce your bill because it will lower the amount you gain from disposing of assets.
With that said, when you choose to sell an asset to charity for either less than market value or more than you paid for it, you’ll need to pay tax. Calculate your CGT on that transaction based on how much the charity gives you.
Use an ISA
An Individual Sales Account or ISA is sometimes referred to as a ‘tax wrapper’ because it protects income and capital gains funds from tax. So, if you invest some of your gainst into an ISA, you won’t have to pay capital gains tax on it.
When you open an ISA, you can put up to £20,000 of your earnings or gains into it annually.
Here are some assets you could invest in an ISA:
- Exchange-traded funds
- Unit and investment trusts
- Individual shares
- Corporate or government bonds
Putting money into an ISA is a long term savings commitment, and the value can fluctuate. Though you could earn nontaxable income from your ISA investment, you might also lose money from it.
See also: Do I have to declare an ISA on my tax return?
Claim gift hold-over relief
Have you sold or given over assets intentionally for less than their worth to benefit the buyer? If so, you may be able to claim gift hold-over relief.
This type or relief postpones some of the chargeable tax until the receipt disposes of the asset. In other words, the buyer is accountable for capital gains tax when they get rid of the asset.
But who’s eligible for this type of relief? You’ll need to either be listed as a sole trader or business owner.
If you give away the assets free of compensation, you won’t need to pay CGT.
Still, giving them away for less than they’re worth, it can reduce the tax you owe.
To work out how much you save, subtract the amount you lost in the reduced sale from the total gain. When claiming gift hold-over relief, you must do so jointly with the recipient of your asset at the time of sale.
Learn more about gift hold-over relief here.
Business Asset Disposal Relief
If you sold all or part of your small business, you might also be able to lower your capital gains tax. Those eligible for Business Asset Disposal Relief only need to pay 10% of the total CGT.
Still, to qualify, you’ll need to have owned your business or been an acting sole trader for at least two years.
Learn more about Business Asset Disposal Relief here.
Simplify your taxes with a clever financial app
With these capital gains tax tips, you can save money to strengthen your finances. But managing your taxes can be stressful and time-consuming without an accounting tool to simplify the process.
Countingup is the business current account and accounting software in one app. It automates time-consuming bookkeeping admin for thousands of self-employed people across the UK.
This app can make your tax process more efficient and less stressful with:
- Year-round tax estimates that help you avoid surprises
- Automatic expense categorisation to help you quickly find proof for tax deductions
- Making Tax Digital compliance that lets you share your financial data with your accountant without lags, errors, or duplications
With these tools, you can stay on top of your finances to seamlessly handle your taxes. Plus, you’ll save yourself hours of accounting admin, allowing you to focus on growing your business.