How to reduce Capital Gains Tax in 2024 (2024)

13 ways to pay less CGT

Some of these tips are easier than others, but if you know you have a looming liability and start thinking about it now, there may well be something you can do to reduce your CGT bill, or mitigate it altogether.

1) Use your CGT allowance

The simplest way to avoid capital gains tax is to regularly use your capital gains tax allowance (officially known as your annual exempt amount or AEA).

How easy this is to do depends on the assets you are selling. It’s tricky if you are dealing with property, jewellery or art that’s worth more than the allowance, but it’s pretty straightforward with an investment portfolio that can be sold off in chunks.

You don’t even need to cash in shares or fund holdings (which you may well not want to do). Using your CGT allowance can be as simple as selling all or part of one holding and immediately reinvesting that money into another company or fund.

If you’ve a looming liability, it’s a good idea to think about this now and take advantage of the £3,000 allowance.

You cannot roll over any unused CGT allowance from previous years, so it really is a case of ‘use it or lose it’.

If you have a CGT liability on the horizon and you have time, you may also be able to avoid paying tax by selling gains gradually over a number of tax years. This doesn’t necessarily have to be a lengthy process – if a gain can be spread over two years you can time disposals to be at the end of one tax year and the start of the next.

2) Give money or assets to your spouse or civil partner

Another easy and straightforward way of reducing capital gains tax is to give an asset to your spouse or civil partner, as this type of transfer won’t be taxed. It also means you can each use your allowance, effectively doubling your annual exempt amount.

Where CGT can’t be avoided, a so-called ‘inter-spouse’ transfer can still be helpful if your spouse or civil partner pays a lower rate of tax than you.

This is because higher rate taxpayers pay CGT at a rate of 24% on property and 20% on all other assets, while basic rate taxpayers only pay 18% and 10% respectively.

It’s important to note that when you give assets to your partner that they are outright gifts; you aren’t just parking it with them temporarily to get one over the taxman. Once the transfer has happened you will no longer be the legal owner of that asset.

This means it’s important that you are confident in the strength of the relationship before you transfer any assets into their name.

Be careful if you give valuable assets to an unmarried partner as this could trigger a chargeable gain. Only gifts to married or civil partners are CGT exempt.”

3) Don’t forget your losses

Your assets and investments don’t always go up. But the upside to losing money on an asset is that when you sell or dispose of it, you can lever those losses to offset capital gains you have made elsewhere. This will reduce the total amount of your gain and subsequently the amount of capital gains tax you need to pay.

You can also carry losses forward from previous years, so long as you have reported them to HMRC within four years from the end of the tax year in which the asset was sold or disposed of.

4) Deduct your costs

In addition to deducting losses from your capital gains, you are also able to deduct certain costs. This will reduce the size of your gains and subsequently the amount of tax you need to pay.

If you were calculating the gain on a property, for example, (but not your main home as that will be exempt from CGT) you would be able to deduct costs relating to its purchase and sale. This could include legal and estate agents’ fees as well as stamp duty. The cost of home improvements like a new kitchen or loft conversion could also be deducted.

Similar costs can be deducted from gains on chattels like furniture, jewellery and artwork. For example, auction charges or sales commissions as well as the cost of restoration and repairs.

5) Increase your pension contributions

Unless you’re at risk of breaching the annual allowance, paying more into your pension is usually a good idea. But in addition to increasing your retirement income, paying more into your pension could, in some cases, reduce the amount of CGT you pay.

This is because CGT rates are linked to your rate of income tax. So, by paying more into your pension, you might be able to reduce your income for tax purposes and subsequently the amount of tax you pay on your capital gains from 20% to 10%.

6) Use your ISA allowance – each year

Any investments you hold in an ISA will be sheltered from tax and, when you cash your investment in, there will be no income or capital gains tax to pay either.

This means you should always take advantage of your annual ISA allowance – currently £20,000. Over the years an ISA can help you shelter a significant investment portfolio from tax. Bear in mind that couples can effectively double that allowance if they use both.

7) Try Bed and ISA

You can also use a strategy called ‘Bed and ISA’. This involves selling shares or funds held outside an ISA (perhaps to tactically realise a capital gain) and then immediately rebuying the same investments within your ISA.

CGT may be payable if the gain is above the CGT allowance, but it does mean that in the future that money will be sheltered from tax.

8) Donate to charity

If you don’t want to give your money to the taxman, you could always donate it to charity instead. Give an asset to a charity and no CGT will be payable on your gains.

9) Consider an Enterprise Investment Scheme

Enterprise Investment Schemes are a government initiative aimed at helping small businesses raise the funds they need to grow. In return for their capital, private investors get generous tax breaks including shelter from CGT if it’s held for three years.

This won’t be an option for everyone as it involves investing in very small companies. But it might be worth considering if you are wealthy and have a high tolerance for risk.

10) Make the most of gift holdover relief

If you are giving away business assets (including unlisted shares, or shares in your own company) for less than they are worth, you may be eligible for gift holdover relief. This means that no CGT will be payable for you on the gift, however the recipient may still be liable for it when they eventually dispose of it.

11) Be aware of chattels that are exempt from CGT

It’s not just assets like shares and property that can give you a CGT headache. Valuable possessions like furniture, art and jewellery may be subject to CGT when you sell them too. But while you might need to pay CGT on the sale of something like antique jewellery or a painting, you won’t normally have to pay it on ‘wasting assets’ which have an expected life of less than 50 years, for example an antique clock or vintage car.

It's also important to be aware that your personal car will be exempt from CGT as will any chattels where the sale proceeds are less than £3,000.

12) Be careful if you give away assets

Giving away assets to anyone apart from a married or civil partner might trigger a chargeable gain. That’s because gifts are treated in the same way as if you’d sold the asset. The potential chargeable gain will be the market price, minus the purchase price.

13) Know when to ask for help

It’s not always complicated to avoid capital gains tax. Sometimes it can be as simple as transferring assets to your spouse or civil partner or shuffling your investments around. However, it can quickly become complex, especially when concerns around tax start to take over your investment decisions. You may also be concerned if you are going to be affected by reductions to the CGT allowance and are likely to pay CGT for the first time.

In these instances, professional advice could be a very sensible investment. A qualified adviser will be able to help you plan ahead and reduce the amount of tax you pay now and going forward.

How to reduce Capital Gains Tax in 2024 (2024)

FAQs

How to avoid capital gains tax in 2024? ›

These include 401(k) plans, individual retirement accounts and 529 college savings accounts, in which the investments grow tax-free or tax-deferred. That means you don't have to pay capital gains tax if you sell investments within these accounts. Roth IRAs and 529 accounts, in particular, have big tax advantages.

What is a simple trick for avoiding capital gains tax? ›

A few options to legally avoid paying capital gains tax on investment property include buying your property with a retirement account, converting the property from an investment property to a primary residence, utilizing tax harvesting, and using Section 1031 of the IRS code for deferring taxes.

Is there any way to reduce capital gains tax? ›

To limit capital gains taxes, you can invest for the long-term, use tax-advantaged retirement accounts, and offset capital gains with capital losses.

Where should I put money to avoid capital gains tax? ›

Use tax-advantaged accounts

Retirement accounts such as 401(k) plans, and individual retirement accounts offer tax-deferred investment. You don't pay income or capital gains taxes at all on the assets in the account. You'll just pay income taxes when you withdraw money from the account.

Do you have to pay capital gains after age 70 if you? ›

Since there is no age exemption to capital gains taxes, it's crucial to understand the difference between short-term and long-term capital gains so you can manage your tax planning in retirement. Short-term capital gains: Profits from the sale of assets held for one year or less.

How to get a discount on capital gains tax? ›

The capital gains tax discount means that if you buy an asset (often a house), hold it for 12 months and then sell it, you only pay tax on half the profit you made. For example, if you bought a property for $400,000 and a year later sold it for $500,000, you have made a capital gain of $100,000.

How do I get zero capital gains tax? ›

Capital gains tax rates

A capital gains rate of 0% applies if your taxable income is less than or equal to: $44,625 for single and married filing separately; $89,250 for married filing jointly and qualifying surviving spouse; and.

What is the capital gains loophole in real estate? ›

You can avoid capital gains tax when you sell your primary residence by buying another house and using the 121 home sale exclusion. In addition, the 1031 like-kind exchange allows investors to defer taxes when they reinvest the proceeds from the sale of an investment property into another investment property.

Can I reinvest my capital gains to avoid taxes? ›

Do I Pay Capital Gains if I Reinvest the Proceeds From the Sale? While you'll still be obligated to pay capital gains after reinvesting proceeds from a sale, you can defer them. Reinvesting in a similar real estate investment property defers your earnings as well as your tax liabilities.

What is the 6 year rule for capital gains tax? ›

Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.

How the rich avoid capital gains tax? ›

Wealthy family buys stocks, bonds, real estate, art, or other high-value assets. It strategically holds on to these assets and allows them to grow in value. The family won't owe income tax on the growth in the assets' value unless it sells them and makes a profit.

What is the zero capital gains tax rate for 2024? ›

For the 2024 tax year, individual filers won't pay any capital gains tax if their total taxable income is $47,025 or less. The rate jumps to 15 percent on capital gains, if their income is $47,026 to $518,900. Above that income level the rate climbs to 20 percent.

What income level avoids capital gains tax? ›

According to the IRS: A capital gains rate of 0% applies to those single filers with taxable income of up to $44,625, or $89,250 for investors who are married and filing jointly.

Do I have to pay capital gains tax immediately? ›

This tax is applied to the profit, or capital gain, made from selling assets like stocks, bonds, property and precious metals. It is generally paid when your taxes are filed for the given tax year, not immediately upon selling an asset.

How do I avoid capital gains on sale of primary residence? ›

As long as you lived in the property as your primary residence for 24 months within the five years before the home's sale, you can qualify for the capital gains tax exemption.

How many years do you have to own to not pay capital gains? ›

Sale of your principal residence. We conform to the IRS rules and allow you to exclude, up to a certain amount, the gain you make on the sale of your home. You may take an exclusion if you owned and used the home for at least 2 out of 5 years. In addition, you may only have one home at a time.

What is exempt from capital gains? ›

If you sell or give away personal belongings ('chattels') then there will be no CGT if your share of the proceeds or value when given away is less than £6,000. See Selling shares and other assets for more information. Please note, however, that company shares are not usually exempt from CGT.

Can I sell stock and reinvest without paying capital gains? ›

You and other investors who want to avoid paying tax on stocks that have appreciated, will “sell” (in actuality contribute) and reinvest, through a swap. This process involves swapping your appreciated shares for a diversified portfolio of stocks of equivalent value, effectively deferring capital gains tax.

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