Any way to reduce tax liability before CGT hit!

Cruixer

Hi all,
In April 2018 I sold my old flat which had been rented out for a number of years so will be due a hefty thump for CGT at the end of this tax year. I am just above the higher tax bracket



I realised a bit too late that I should reduce my taxable income for the year by doing the full salary sacrifice to pension, and it was December payroll before I was able to start this. Its unfortunate because going forward I intend to do the maximum salary sacrifice to pension right through 2019 and as long as we can afford it, so if I had only started earlier in 2018 I would be in a better tax position now.



My question is whether there is anything else that I could do between now and the end of the month to reduce my income for the year and by extension the hit on CGT?



Or, if I keep contributing the maximum to pension in 2019, reducing my taxable income, is there any way of claiming some of the tax for 2018 back?



I suspect beyond inventing a time machine there is probably nothing I can do, but I thought it worth the asking.



Thanks
Kenny

Cruixer

I think I may have answered my own question with a bit of searching through the forum and internet, but would still appreciate any responses to confirm whether I am right or wrong, or any other things I haven't thought about.

I can't put anything into my work pension retrospectively, but if I have read things right it seems that I could pay money from my bank account into a SIPP and by including this in my self assesment, this would reduce my taxable income.

However, I have also realised that as CGT is 28% and 18%, I would only save 10% on the amount below the higher tax band and still pay 28% on the majority. From what I could work out even if I paid as much as £10k into a SIPP it would only reduce my CGT bill from £14.9k to a little over 14.1k.

I think this is right...

Thanks,
Kenny.

anselld

You could look at EIS investments.

They are inherently somewhat risky but they do allow you retrospectively both to defer CGT liability and obtain 30% income tax relief.

Johnnyboy11

If you hold any shares or investment funds that are running at a loss, you could sell these to offset that loss against your property gain.


Or, you might consider buying shares in companies that go ex-dividend this month, the share price will likely drop, then you sell it at a loss, but will have qualified for the dividend. You'd be converting a capital loss into a dividend, which has a separate tax allowance. Try here if you fancy a punt, goes ExDiv on 14th March and looks cheap today relative to yesterday!

Dazed_and_confused

but if I have read things right it seems that I could pay money from my bank account into a SIPP and by including this in my self assesment, this would reduce my taxable income

SIPP contributions into a "relief at source" scheme will not reduce your taxable income.

They will increase the amount of your basic rate income tax band, which can in turn reduce the amount of higher rate income tax payable but they do not make any difference whatsoever to your taxable income.

They do reduce your "adjusted net income" which is used for determine certain income tax related things such as Personal Allowance amount, High Income Child Benefit Charge and amount of Married Couple's Allowance due.

Tom99

In order to pay 18% CGT on £1 instead of 28% by paying £1 into a SIPP, won't you have to accept 20% tax relief on the £1 SIPP payment rather than 40% if you confine your SIPP contribution.
You will be paying 20p to get back 10p

anselld

Tom99 wrote: »

In order to pay 18% CGT on £1 instead of 28% by paying £1 into a SIPP, won't you have to accept 20% tax relief on the £1 SIPP payment rather than 40% if you confine your SIPP contribution.
You will be paying 20p to get back 10p

SIPP contribution below the high rate threshold will get 20% relief (at source) but the overall effect, once the tax return is done, will be to free headroom below the threshold for lower rate CGT to apply.

However it is still questionable in the long term when you consider that pensions are mostly taxable when they pay out. So the 20% "relief" is mostly a deferral.

londoninvestor

anselld wrote: »

You could look at EIS investments.

They are inherently somewhat risky but they do allow you retrospectively both to defer CGT liability and obtain 30% income tax relief.

And you've got 3 years after the capital gain to make the EIS investment and use it to defer CGT.

It would probably be the tax tail wagging the dog though, unless you already have a substantial investment portfolio and are comfortable putting a small percentage of it into high-risk investments.

Cruixer

Thanks all for the suggestions. Sounds like SIPP doesn't really help me very much.



The other suggestions seem a little too complex for me to jump into when I have no real experience of investing.



Sounds like I will just have to invent a time machine, go back to earlier in the tax year and start my salary sacrifice early.



I do recognise the point about pension sacrifice only deferring the 20% tax, and I think from April I will reduce the pension down to get me out of the 40% bracket and put rest that I can manage into a stocks and shares ISA.

00ec25

are you sure you have calculated your CGT liability correctly, including all available relief?

Cruixer

I've added in costs for the purchase and sale, like solicitors fees etc.



Are there other reliefs I should be adding in?