How splitting assets with your other half can reduce Capital Gains Tax

Selling a second property? Cashing in a share portfolio? When you sell a valuable asset, you may have to pay Capital Gains Tax (CGT) on your profits. 

One possible way of avoiding – or at least reducing – this tax bill is to give an asset to your partner, or split it with them. By doing this, both of you are able to use your individual CGT allowance and reduce the amount of tax payable overall. 

Read on to find out how sales of assets are taxed and how splitting them with a partner, along with other strategies, can help you cut your CGT bill. 

Who pays Capital Gains Tax? 

CGT may be payable when you sell certain assets and your gains are over the annual CGT allowance. 

So-called ‘chargeable assets’ include shares that aren’t held in a tax wrapper such as an ISA or pension; business assets; personal possessions worth more than £6,000; and property that isn’t your main home, which could be a holiday home, pied-à-terre or rental. 

How much is Capital Gains Tax? 

How much CGT you pay depends on your income and the asset you’re selling. 

If you pay the higher or additional rate of income tax, CGT is charged at 28% on your gains above the annual CGT allowance from residential property and 20% on gains from all other chargeable assets. 

It’s a bit more complicated if you pay basic-rate tax. CGT is charged at 18% and 10% respectively; however, if your gains take you into the higher-rate tax threshold, you may pay tax at both rates. 

Certain business assets may also be eligible for a special rate of 10%. This is known as Business Asset Disposal Relief. 

It’s important to note that the tax is only charged on the gain that you’ve made on the asset, not its total value. 

What is the Capital Gains Tax allowance? 

The CGT allowance for 2022/23 is £12,300. This is the amount of profit you can make on the sale of chargeable assets this tax year before you have to pay CGT. 

You get a new CGT allowance each year. However, if you don’t use it in one year, it cannot be carried over to the following year.  

How can giving assets to my partner cut our CGT bill? 

If the sale of an asset is going to take you over your £12,300 CGT allowance and land you with a tax bill, you can give the asset to your partner assuming their allowance is still available. They can then sell it and use their annual allowance so you can reduce or avoid paying CGT altogether. 

For example, if you have shares that are now worth £17,000 more than when you bought them, selling them would take you over your CGT allowance. Instead, you could give some shares to your partner, who could then sell them. This means the amount gained is less than your individual allowances and won’t be subject to tax. 

It’s important to note, though, that you have to give away the asset outright and your partner will become its legal owner. If you’re planning your financial future together, this shouldn’t be a problem – nonetheless, it’s not something to do without proper consideration. 

Are there other ways to cut my CGT bill? 

There are several other options: 

  • Straddle the sale of assets over several tax years. For example, you could sell part of a share portfolio on 3 April and the rest on 6 April to take advantage of two years’ CGT allowance. 
  • Offset any losses you’ve made on other assets. So, if you have a share portfolio or family heirloom that’s made a loss, for example, you can use that to reduce the taxable gain on another asset you’re selling, such as property. 
  • Over time, you can shelter more of your assets from tax by investing them in an ISA or pension. You might want to consider a Bed and ISA – where you sell shares and immediately buy them back within an ISA wrapper to shelter future gains. 

How we can help 

CGT can make selling assets seem fraught with hassle. But depending on your circumstances and over the long term, it could still work out to be more tax efficient than drawing down other assets, such as your pension.  

By talking to us on a regular basis and considering all your assets together – rather than in isolation – you’ll be able to build a solid financial plan. We’ll be able to help you work out which assets you need to sell and when. 

Whether you give away assets to your other half or do something entirely different, we can ensure your finances are managed as tax-efficiently as possible. This means taking advantage of all available reliefs and allowances so you pay the right amount of tax and no more than necessary.  

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.  

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances. 

Sovereign Wealth Limited is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. Sovereign Wealth is a limited company registered in England and Wales, Number 07115386. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.