Tax-Free Gains – Staying in Control of Your Finances

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Death and taxes are the two things which are guaranteed in life – and most people aren’t keen on either. Although taxes are an inevitability, you can minimise by how much you have to pay by being smart about your finances and investment. 

Here are a few ideas about how you can optimise your finances while still enjoying tax-free gains. 

ISAs

We’ll start with the best known of all the tax-efficient options: the ISA. 

Individual Savings Accounts, often referred to as an ISA, can be used to either invest in stocks and shares or to save cash. You can save up to £20,000 and you can either choose one type of ISA or invest in both. 

Any profits you make from your ISA are entirely free of capital gains tax and income tax. This applies to any profits, as well as the interest. 

Spread betting

Under UK law, spread betting is classified as gambling and treated as such. This is why there are different financial benefits compared to other types of trading products and why it has such a significant tax advantage. 

Although spread betting is treated as gambling, it shares many common elements with other types of trading. You decide how much to trade, whether you want to go long or short, and then watch the market to determine if you need to close or hold your position. 

Like all types of trading, spread betting carries a risk, and you should never trade with funds you can’t afford to lose. However, if you make a profit, you won’t lose any of your cash to the taxman. One of the significant benefits of spread betting is that it’s free of capital gains tax, unlike many other types of trading profits. 

Interest in Bank and Building Society Accounts

Almost everyone is entitled to a Personal Savings Allowance, even if you’re a higher rate taxpayer. It means you can receive a certain amount in interest from bank and building society accounts without attracting any tax. 

If you’re a base-rate taxpayer, you can receive up to £1000 in interest without being liable for tax. If you’re a higher-rate taxpayer, you can receive up to £500. If you pay additional tax, you won’t receive anything. 

Capital Gains Tax Exemptions

Capital Gains Tax is what you’ll pay on the profit you make on assets. This is calculated when you sell them; the amount you receive is compared to the amount you paid, with the difference being described as the chargeable gain. 

Everyone has a capital gains tax allowance which for 2019/2020 was £12,000. It is an annual figure which renews every year. If you time the sale of your assets carefully, you can reduce your CGT liability. 

However, there are some items which don’t attract any CGT, regardless of when you sell them. These are:

  • The majority of corporate bonds and government bonds (also known as gilt bonds)
  • Investment ISAs
  • Any profits from selling your primary home (usually)
  • Personal belongings which are worth less than £6000 at the point of sale

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