Learning to be clever with your capital gains is a must if you want to be a savvy investor. Here are three useful tips to consider to make your capital gains as cost-effective as possible.
1. Defer capital gains by investing in EIS.
Investing a taxable gain in an EIS allows you to defer capital gains for as long as that money remains invested. In practice, you can defer paying capital gains tax on this money indefinitely if you continue to reinvest it in an EIS each time you dispose of your shares (providing you have held them for three years, before disposing of them, each time).
An added bonus here is that when you invest in an EIS, any gains you make on that investment are themselves exempt from capital gains tax, provided you hold the shares for more than three years, and have received full income tax relief on those shares. Some EIS funds are very accessible, with minimum investments of around £5,000.
For further information on EIS funds, including the Access EIS fund which has a minimum investment of £5,000, click the button below.
2. Invest capital gains into a property trust.
Investing your capital gains into a property trust means that capital gains tax is only payable on the sale of that property, meaning you can potentially defer it indefinitely. In the event of your death, the beneficiary of the trust will not have any capital gains tax to pay, but capital losses will not be allowable either.
3. Make use of gifts and losses.
Gifting assets to others transfers any capital gains liability they may carry to the recipient when they sell the asset. Because of this, the recipient will have to agree to the transfer. Alternatively, selling assets at a loss can reduce your overall capital gains liability.
Beyond deferring capital gains
The Enterprise investment scheme offers additional capital gains tax relief beyond just deferring an existing gain. Investors who invest into an EIS fund or into EIS eligible companies directly do not pay CGT on the gains achieved through the investment when the shares are held for a minimum of three years. Further, losses from EIS investments can be offset against income or capital gains. Read more about EIS and capital gains tax.
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