The annual capital gains tax exemption for 2020/21 is £12,300. This means that any capital gain less than or equal to £12,300 is exempt from Capital Gains Tax. However this allowance could not be carried forwarded.
I will now explain with an example how to efficiently use your annual CGT exemption.
For example:
You are a strong believer in investing in shares and have a significant shares portfolio. You are also a higher rate tax payer, which means any disposal of shares, over annual CGT, will attract a capital gains tax at 20%. You now want to sell your entire shares portfolio that could result in a gain of £61,500. The capital gains tax on it without any tax planning will be £9,840
However you chose to discuss this before with your accountant, who advised you to sell enough shares, every year, to only realise a gain of £12,300 per year (or realise the gain equivalent to annual CGT exemption for the future years if different than £12,300). This means that you could still have your gain of £61,500 (or more) spread over 5 years but saved yourself a massive sum of £9,840.
Gain of £61,500
Without Tax planning – Capital Gains Tax payable £9,840 – A very happy Tax man
Tax Planning – Capital Gains Tax payable £0 – A very happy you
We are trying to figure out who would you rather please?
Why not let the taxman pay £1968 towards your holiday each year for the next 5 years??
Please note: This doesn’t not constitute as tax advice. Professional advice must be sought before any tax planning.