Sole trader and Capital Gains Tax

mitchino

I am self employed and this tax year it looks like I will have a taxable profit of around £40,000.

I have also sold a plot of agricultural land that will give me a capital gain of around £70,000.

I would obviously like to pay as much tax as I can at the lower rate of 10% on the gain, rather than the 20% rate.

What steps can I take to reduce the CGT due?

I've read that it's possible to put most of the gain into my private pension to shelter it, is that true?

I could also buy some equipment for my business and use my 100% investment allowance, is that a good idea?

Any help gratefully received!

mybestattempt

This something I would suggest you take professional advice about.

You may be able to reduce the capital gain assessable to CGT if the agricultural land was used as a business asset in your self employment trade and you reinvested the proceeds in new business assets used in your self employment trade. 

You may be able to reduce taxable profits from your self employment  by investing in new equipment for your self employment and/or making additional pension contributions reducing income tax due and as a consequence when the higher CGT rate kicks in.

A good accountant should be able to go through the actual figures and advise you which of these are possible and what amounts give you the best result (or make other suggestions about what to do).

Bear in mind this tax year has only three weeks to run so you may be pressed for time to get things done. 

mitchino

Thanks, The land was not a business asset, so that option won't work.

As you say a bit late in the day, especially as the gain hasn't yet been made, though the land sale is almost complete.

It might slip into next year, but then my tax free allowance will be cut in half to £3000. Grrr!

Dazed_and_C0nfused

mitchino said:

I am self employed and this tax year it looks like I will have a taxable profit of around £40,000.

I have also sold a plot of agricultural land that will give me a capital gain of around £70,000.

I would obviously like to pay as much tax as I can at the lower rate of 10% on the gain, rather than the 20% rate.

What steps can I take to reduce the CGT due?

I've read that it's possible to put most of the gain into my private pension to shelter it, is that true?

I could also buy some equipment for my business and use my 100% investment allowance, is that a good idea?

Any help gratefully received!

Where have you read that?

I suspect you have misunderstood something as you will be limited by your self employment profit to contributing £40k (gross) to a pension.

As far as I'm aware this won't make any difference whatsoever to the amount of gain chargeable to CGT.

But it will increase your basic rate by £40k.  Unless you are a Scottish resident for tax purposes this won't save you any personal income tax but it would change the rate some of the capital gain was charged at.

[Deleted User]

Dazed_and_C0nfused said:

mitchino said:

I am self employed and this tax year it looks like I will have a taxable profit of around £40,000.

I have also sold a plot of agricultural land that will give me a capital gain of around £70,000.

I would obviously like to pay as much tax as I can at the lower rate of 10% on the gain, rather than the 20% rate.

What steps can I take to reduce the CGT due?

I've read that it's possible to put most of the gain into my private pension to shelter it, is that true?

I could also buy some equipment for my business and use my 100% investment allowance, is that a good idea?

Any help gratefully received!

Where have you read that?

I suspect you have misunderstood something as you will be limited by your self employment profit to contributing £40k (gross) to a pension.

As far as I'm aware this won't make any difference whatsoever to the amount of gain chargeable to CGT.

But it will increase your basic rate by £40k.  Unless you are a Scottish resident for tax purposes this won't save you any personal income tax but it would change the rate some of the capital gain was charged at.

Using the proceeds to buy equipment won’t alter the CGT either (if that’s the reason for mentioning 100% first year allowance)

mybestattempt

[Deleted User] said:

Using the proceeds to buy equipment won’t alter the CGT either (if that’s the reason for mentioning 100% first year allowance)

It wouldn't reduce the capital gain but could reduce the self employment profit and thus the amount of the gain chargeable at the higher rate.

mitchino

I am a scottish resident as it happens. Didn't realise that my max pension contribution is limited by my self employed profit.