Year End planning : Capital Gains Tax

There are a number of planning measures taxpayers can undertake in relation to capital gains tax, some of which are summarised below.

1. Utilising the annual exemption

   The annual exemption, which is £10,600 for 2011-12, cannot be carried forward if unused and so should be used to crystallise gains on investments. It should be borne in mind, though, that same year gains and losses have to be merged before the annual exemption is applied.

   Spouses and civil partners are entitled to their own annual exemptions and these can be fully utilised by making a transfer to a spouse or civil partner. Great care should be taken to prevent HM Revenue & Customs successfully challenging such a transfer by not making any arrangements to effect the sale until the transfer is complete, leaving a reasonable interval between the transactions and specifying that the transfer is absolute and unconditional.

2. Utilising losses

   It may be beneficial, particularly where there are current year gains taxable at the higher rate of 28%, to crystallise any investments standing at a loss. The set off of losses against same year gains cannot be restricted and so any potential wastage of the annual exemption should be considered.

3. Claim capital losses

   A capital loss must be claimed within 4 years of the end of the tax year in which it occurred for relief to be given. The loss claimed can subsequently be carried forward indefinitely.

4. Relieve capital losses against income where possible

   Capital losses realised in respect of unquoted shares can, in some cases, be relieved against income. Relief must be claimed within 12 months of 31 January following the end of the relevant year of assessment.

5. Deferring disposals

   Deferring the sale of assets until after the end of the tax year should be considered if the annual exemption for the current year has already been used. This will utilise the 2012-13 annual exemption and defer the payment of any capital gains tax due by 12 months until 31 January 2014.

6. Bed and spousing

   The practice of “bed and breakfasting”, whereby a person sold stocks or shares and then repurchased them shortly afterwards to secure a higher acquisition cost, has for many years been negated by the rule requiring a disposal to be matched with any acquisition of securities of the same class in the same company in the next 30 days. This only applies to a repurchase by the same person, however, so a spouse or civil partner can repurchase the shares without this rule being applied.

7. Negligible value claims

   A negligible value claim can be made where an asset becomes worthless. The effect of the claim is that the owner of the asset can pretend that he has sold the asset in question for its current market value and frequently the current market value of the asset is zero. The asset is then deemed to have been reacquired by the owner for the same price and the owner’s base cost for capital gains tax purposes will be nil.

   A capital loss arises at the time of the owner’s deemed disposal of the asset. The loss can be treated as arising in the tax year in which the negligible value claim is made or as arising in any of the 2 tax years immediately preceding the claim, provided HM Revenue & Customs are satisfied that the asset was of negligible value in those 2 years.

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