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Protect your capital gains

Capital gains tax (CGT) still remains one of the most complex of all taxes. You don’t normally pay it on the profits of the sale of your main home, but you have to pay it when you sell most other assets, including shares. It is paid at your highest rate - so if you are a high earner you could see 40 per cent of a gain ending up with the taxman.
Every man, woman and child has an annual CGT exemption. This tax year (2003/04) you can have gains of £7,900 before the taxman can take a penny. Another facility, called ‘taper relief’, can also reduce the tax due on asset sales. Read our top tax tips to safeguarding your gains

What you need to know
* To shelter from CGT in the future, consider investing in shares and collective investments, such as unit trusts, using your £7,000 annual ISA entitlement. The savings wrapper provides full CGT and income tax protection.
* If you’ve used up your own ISA entitlement for this year, but still have money to invest and are married, consider transferring funds to your spouse so that they can use their ISA entitlement.
* You should review both your own and your spouse’s (non-ISA) share portfolios annually to check if one has dramatically outperformed the other. You could save on future tax payments by redistributing assets between each other.
* You may also wish to invest cash for your children in a bare trust to use up their annual CGT exemption in future years. However, income over £100 gross per annum from gifts from one parent to a minor unmarried child is subject to tax at the donor’s marginal rate of tax.
* Venture Capital Trusts and Enterprise Investment Schemes can also provide an opportunity to defer CGT and reduce income tax otherwise payable. They can have a more speculative risk profile but offer important tax breaks if you are an appropriate investor.

(article dated 1/11/03)

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The Financial Services Authority does not regulate taxation and trust advice. The value of current tax reliefs depend on your own circumstances which may be subject to change in the future.