Delaying Capital Gains Tax

It's all in the timing

If you need to sell an investment as a way to boost your cash flow, you don't want to end up sharing your cash with the Taxman. It defeats the object. Here's a simple but effective way to delay paying Capital Gains Tax (CGT) for up to 21 months.

Tip. If you put back the sale of assets until after April 5 2013, it will fall in the tax year 2013/14. As a result, any tax due won't be payable until January 31 2015.

But in some cases CGT on share pay-outs can be deferred indefinitely.

Capital sums

It's an increasing trend these days for companies to re-organise their share capital. That might be as part of a take-over or, as in the case of a few banks at the moment, a rights issue. When this happens you may receive a cheque from the company involved. This type of payment is called a "capital sum". Normally, capital sums derived from shares, unit trusts etc. are treated as a sale for CGT purposes. But where the amount is "small" compared to the total value of that asset, you can defer the CGT until you sell it. If you never sell the asset, you'll never pay the CGT on the capital sum.

Tip. The Taxman is prepared to accept that any capital sum of less than £3,000 or 5% of the total value of the asset, whichever is the greater, is "small".

If you want to claim the "small disposals" exemption, you must send the Taxman a written election. This is most easily done by including a note on your tax return.

Small disposals of land

There are similar rules for small capital sums you receive from land (including buildings). With shares etc. you probably have little or no choice in whether you receive a payment from the company involved. The important difference is that, with land, you are more in control of the exemption. You can actually choose to sell part of it, and provided the proceeds are within the limits, you can claim the small disposal exemption.

The limits on the sale proceeds are that they should be:

1. No more than 20% of the land's market value.

2. Not more than £20,000. (But if the land is sold as a compulsory purchase, the limit is similar to the small capital sums exemption for shares, i.e. the greater of 5% of the total value and £3,000.)

EIS anyone?

Although not suitable for improving cash flow, there is another way to defer CGT, and it's open to anyone.

Tip. If you invest your capital gain in an Enterprise Investment Scheme (EIS) within the following three years, you can defer the CGT until you sell the EIS investment. As a bonus you can also claim income tax relief equal to 20% of your investment. But note that these are generally medium to high-risk investments.

Delaying Capital Gains Tax

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