Capital Gains Tax - how to lower liability?
Discussion
Serious question here. And yes, I know I've left it too late. And I also know I should be seeking proper advice rather than asking a pack of keyboard warriors on t'internet. but here goes:
I'm about to do a tax assessment for 18-19. I have had a capital gain in this period relating to the sale of a property. The capital gain from this is around £35k. With a CGT allowance of £11700 this means tax to be paid on £23.5k or so.
I can control my other income so I will take no salary or dividends from my company for this year, making things easier. However I have the following questions:
- I have rental income from another property in this period. I presume that there is no option to 'defer' this income to the following year to reduce the tax hit?
- I notice that pension contributions can be put against CGT, but I can't put more into my pension than 100% of my earnings. What counts as 'earnings' in this context? Can I put the all of the gain above the allowance into a pension and avoid paying tax on it?
- My wife can control her earnings to an extent and get them below higher-rate. Can I give any of the 'capital gain' from the property sale to her (up to the higher-rate threshold) to reduce my own tax bill?
Answer welcome. Or I'm more than happy to pay a fellow IFA PH-er the going rate for half an hour's telephone advice if this is a better way to go.
I'm about to do a tax assessment for 18-19. I have had a capital gain in this period relating to the sale of a property. The capital gain from this is around £35k. With a CGT allowance of £11700 this means tax to be paid on £23.5k or so.
I can control my other income so I will take no salary or dividends from my company for this year, making things easier. However I have the following questions:
- I have rental income from another property in this period. I presume that there is no option to 'defer' this income to the following year to reduce the tax hit?
- I notice that pension contributions can be put against CGT, but I can't put more into my pension than 100% of my earnings. What counts as 'earnings' in this context? Can I put the all of the gain above the allowance into a pension and avoid paying tax on it?
- My wife can control her earnings to an extent and get them below higher-rate. Can I give any of the 'capital gain' from the property sale to her (up to the higher-rate threshold) to reduce my own tax bill?
Answer welcome. Or I'm more than happy to pay a fellow IFA PH-er the going rate for half an hour's telephone advice if this is a better way to go.
Only ‘earned’ income is pensionable - rental income is not classed as ‘earned’
Not sure what you mean by pension contributions can ‘offset’ CGT - as far as I’m aware the only avenue to use pension contributions to lower CGT on a property is to lower your income to basic rate tax status and therefore lower the CGT payable on your gain (property attracting a higher rate of CGT than other assets).
If you’re self employed do you have an accountant? They would be best placed to advise.
As you’re filing a return for 18/19 the only way of increasing contributions for that tax year is to fill this years allowance first (£40k)
IANAA - so please check anything I’ve written before taking it as verbatim.
Edit: just read your s statement on leaving it too late and professional advice. Sorry! 🤣
Not sure what you mean by pension contributions can ‘offset’ CGT - as far as I’m aware the only avenue to use pension contributions to lower CGT on a property is to lower your income to basic rate tax status and therefore lower the CGT payable on your gain (property attracting a higher rate of CGT than other assets).
If you’re self employed do you have an accountant? They would be best placed to advise.
As you’re filing a return for 18/19 the only way of increasing contributions for that tax year is to fill this years allowance first (£40k)
IANAA - so please check anything I’ve written before taking it as verbatim.
Edit: just read your s statement on leaving it too late and professional advice. Sorry! 🤣
Edited by thekingisdead on Monday 20th January 13:58
2Btoo said:
I'm about to do a tax assessment for 18-19. I have had a capital gain in this period relating to the sale of a property.
I can control my other income so I will take no salary or dividends from my company for this year, making things easier.
Those concepts don't fit together. One is in 2018/19 and the other is in 2019/20. I can control my other income so I will take no salary or dividends from my company for this year, making things easier.
Thanks for the replies. Asking my accountant is the best option - that's a good point.
rockin - yes, but if your company year doesn't match the tax year then you can sometimes split income between tax years, making things more tax-efficient.
House was never my main residence. Nice idea though.
The house was owned between my parents (25% each) and me (50%). The figures given here are therefore 50% of the totals (i.e. 50% of the gain, with the costs split between all three of us.)
rockin - yes, but if your company year doesn't match the tax year then you can sometimes split income between tax years, making things more tax-efficient.
House was never my main residence. Nice idea though.
The house was owned between my parents (25% each) and me (50%). The figures given here are therefore 50% of the totals (i.e. 50% of the gain, with the costs split between all three of us.)
2Btoo said:
rockin - yes, but if your company year doesn't match the tax year then you can sometimes split income between tax years, making things more tax-efficient.
Yes, but I can't see how that's going to help. Your 2018/19 personal CGT year ended on 5 April 2019. It's not obvious to me how you would now be able to go back and change the amount of income you did or didn't receive in that same income tax year.Not much you can do now that the sale etc has all happened and the cash is in the bank. However, when working out the basic gain on disposal;, make sure that you properly account for all the allowable costs that can be offset against the gain. Apart from legal, agency and other admin costs incurred during the sale, was there any enhancement expenditure on the property over its period of ownership that you could use to augment the original purchase price?
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