How to defer Capital Gains Tax or avoid it altogether

Jun 13, 2018 | Tony Byrne's View

As any regular reader of my blog will know by now I have a dim view of the high taxes we pay in the UK, the hidden taxes and the sheer complexity of the tax system. Sir Humphrey of Yes Minister fame would love it of course!

I am particularly critical of the main capital taxes by which I mean Stamp Duty, Capital Gains Tax and Inheritance Tax. Why? Well it’s because the taxpayer has already paid tax and National Insurance on his income and VAT on his expenditure. He then gets clobbered for CGT up to 28% on capital gains and for IHT up to 40% of his estate at death.

The good news is there remain ways to reduce capital taxes or even to eliminate them altogether.

You can defer payment of CGT by re-investing the capital gain into an Enterprise Investment Scheme (EIS). There is also 30% Income Tax relief on the investment. If the gain is re-invested into a Seed EIS in the same tax year CGT relief of 50% is given. Again you get Income Tax relief on the investment but this time at a rate of 50%! So you not only benefit from CHT deferral but also Income Tax relief which is greater than the rate of tax on the capital gain itself!

Another deferment strategy is to re-invest the capital gain into a relevant property trust. The gain is then deferred potentially indefinitely. Technically, where a disposal made by an individual or trustees is a chargeable transfer for Inheritance Tax, then CGT holdover relief is available on the gain.

With all of these tax deferral strategies you have to remember the old adage that tax deferred is tax saved!

Legitimately avoiding CGT is much more challenging however it is possible. The two most common ways of doing it are unfortunately extreme.

Firstly you could emigrate and establish non-resident status with HM Revenue and Customs. Once established you can sell your UK assets free of CGT! You would also need to ensure that the country you are emigrating to doesn’t tax the same UK capital gains at all or if it does tax them it only does so at a lower tax rate. Obviously you would need to take advice from a tax specialist first.

The second way of avoiding CGT is to die! A pretty drastic measure I would say. However, the fact remains that CGT is not payable on death. Obviously this is not something you should plan for!

So there you have it. There are ways to defer and avoid Capital Gains Tax. If you want advice on the subject who better to ask than a wealth management specialist company such as ours? You know it makes sense.

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