Ways to reduce CGT on shares
Here are some ways you can reduce your CGT bill if you have shares inside a GIA:
- Tax loss harvesting – Simply sell your losing holdings – you can buy them back inside an ISA or buy them back after 30 days inside the GIA or immediately buy a similar share (but not the same company/ETF).
- Excess Reportable Income (ERI) – Offshore funds (such as ETFs, etc.) can be accumulating or distributing. Under HMRC tax rules, you must declare income/dividends and ERI each year for both types (this also applies to accumulating funds which don’t directly pay dividends into your account but very often still declare ERI each year as ‘notional payments’). If you are a UK basic rate tax payer, by including ERI (which you should do anyway by law) you can reduce your tax bill because tax on dividends is much lower than CGT. See here for more details.
- Use your CGT allowance – You can make capital gains of up to £3k tax free (and up to £500 allowance on dividends).
- Spread out gains across the years – Sell some before April 6th and some after to use the £3k allowance for each year.
- Bed-and-ISA – Typically, sell enough shares to use your £3k CGT gain allowance and put up to £20k into an ISA
- Bed-and-SIPP – Same as bed-and-ISA BUT anything you put into a SIPP also reduces your taxable earnings and may bring your income tax band down to the Basic rate. This means your CGT rate would be 18% instead of 24%.
- Spousal transfer – Some large brokers (HL, Interactive Investor, AJ Bell) will allow you to transfer shares, tax free, to your spouse if you both have GIA accounts with the same broker. You will then have £6k CGT total allowance between you. Also, your spouse may be a Basic rate tax payer and so they may pay a lower CGT rate than you.
- Gifting shares to charity – Rather than cashing in the shares and paying tax on the sale, some large brokers (e.g. HL, Interactive Investor, AJ Bell) will allow you to gift shares directly to some of the larger charities without any deductions for tax.