How To Avoid Capital Gains Tax?

How To Avoid Capital Gains Tax?
How To Avoid Capital Gains Tax?

It’s important to avoid capital gains tax because it can be used as a deduction on your income tax, but with most people avoiding this duty it makes it harder for taxpayers to claim the right amount. 

Expats and Capital Gains Tax on Mexican Real Estate - MexLaw Real Estate Law

There are several ways in which you can avoid capital gains tax though; here is how:

Make sure that your income falls within the basic rate band (20% for most)

This means that if your taxable income falls below £32,000 per year then you won’t have to pay any CGT at all. It is very unlikely that anyone earning below this figure would be liable for Capital Gains Tax. If your yearly salary is higher than £32,000 then you will need to consult HMRC’s Capital Gains Tax guide; what you earn determines how much you need to pay.

Make sure that your income falls within the higher rate band (40% for most)

If the taxpayer earns above the basic rate band but less than or equal to £42,000 then they will have to pay 20% on gains made over the years. This means that if an individual was to sell a property which had cost them £31,000 and made a profit of £10,000 then they would be allowed to keep all of their profits after paying only 10%, this is because anything over £32,000 is taxed at 40%.

Only ever trade in financial securities

The Capital Gains Tax is only payable on ‘chargeable assets’ that are sold for profit. This means that if you were to purchase shares or stocks then they would not be subject to Capital Gains Tax, but if you were to sell them later on then the gain would be taxable. Make sure that you always buy and sell your assets within ISA accounts so that deductions do not become necessary.

You should also remember that it doesn’t matter how many times you trade shares or share options (or any other security) because anything which profits the individual will always incur CGT liability.

This means that if an investor was to buy stock A at £10, sell it 15 minutes later for £11 and then buy it again later that day for £20 then they would owe CGT on the entire amount of £30. This is why people try to avoid capital gains tax; it can add up very quickly!

Ensure that you live in a property before selling it

Here’s another tip: if an individual sells a house or any part of the land which has been their main residence (or one which they have lived in at any point while owning the home) within the three years before selling it, then they will not be liable for CGT.

The rules regarding this are quite complicated so homeowners should ensure that they check these policies thoroughly before they sell their homes. This doesn’t mean that you can only live in homes which you want to sell later on; there is no such rule!

Make sure that any property sold was not, at the time of purchase, intended as a business venture

If you buy a property with intention of selling it for profit or renting it to make money then this will be deemed as a ‘business venture’ and all profits from this transaction will be subject to CGT.

This means that if a landlord were to purchase a home with intention of selling it for £20,000 more than they bought it for then they would have to pay CGT even though they profited by £20,000. Make sure you understand what qualifies as a business before selling properties.

Never sell properties after owning them for less than a year

Individuals who own new properties can avoid paying CGT on any of the profits made if they sell it within twelve months. This is why people often buy homes that have just come onto the market, live in them for a year and then sell them at a profit; that way no capital gains tax would be levied against them.

This rule does not apply to individuals who make money through trading securities, however; there is no time limit with these trades so it makes sense to trade share options or other security deals instead!

Avoid selling certain types of property

If an individual were to sell their property (or part of their home) which is deemed to be a ‘caravan, boat or plane’ then they will have to pay CGT. These items are often seen as being ‘exempt assets’ which means that they can be sold for profit without any liability towards paying capital gains tax.

Give up a business before selling it

If an individual were to sell the property of their business before officially giving up ownership of the company themselves then no capital gains tax would have to be paid if any profit was made from the sale of the premises. This is because this money would not belong to the individual and therefore cannot be subject to Capital Gains Tax when sold.

Make sure you understand all deductions before trading securities

Capital Gains Tax can be extremely difficult to calculate. Often the only way to know if an individual owes any money on previous trades is by looking at their tax history and seeing exactly how much they have paid in CGT over the years. It all depends on your profit margins!

Talk to a financial consultant before you start trading securities

A knowledgeable financial consultant or accountant should be able to recommend deductions that will be relevant depending on your personal trade history. They are often able to suggest certain ideas which may mean that you do not have to pay Capital Gains Tax when trading securities!

Capital gains tax is very rarely easy for individuals however the above tips should help reduce the risk of paying unnecessary taxes whenever possible. If you understand the rules and regulations then you should be able to avoid paying the tax whenever possible! Check on how long do you have to live in a house to avoid capital gains tax in Australia?