Reducing Capital Gains Tax

For dental and medical professionals in the UK, navigating the complexities of personal financial planning can be daunting. As high-earners, doctors and dentists might face a significant capital gains tax (CGT) liability when selling assets. However, various strategies exist to help you legally reduce this burden. 

Dental & Medical Financial Services have been assisting doctors with their financial planning for over 30 years. For several effective methods to minimise your CGT liability, ensuring you retain more of your hard-earned wealth, read on.

This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.  

Understanding the Annual Exemption 

First and foremost, every individual is entitled to an annual exemption from CGT. For the 2023/24 tax year, this exemption stands at £6,000. Any capital gains realised up to this amount do not incur tax. Therefore, it’s crucial for high-earning professionals to keep track of their gains to ensure they make full use of this exemption. If you can stagger the sale of assets across tax years, you can effectively double your exemption by spreading out the gains over two separate years. 

Optimising Exemptions 

Maximising your exemptions goes beyond just claiming the annual exemption. Other forms of assets, such as your primary residence, benefit from Private Residence Relief. So, if you sell your home, you typically won’t pay CGT on any profit. For higher-value properties, keeping records of any home improvements can improve your exemption further, potentially shielding greater gains from tax.

Utilising Losses 

Another strategic approach to reducing your CGT liability is utilising losses to offset gains. If you’ve previously invested in assets that have depreciated in value, solidifying these losses by selling at a loss can help to offset gains elsewhere. This is particularly useful if you’re expecting a significant capital gain on another asset but also have losses to account for. 

Transferring Assets to Your Spouse or Registered Partner 

Don’t overlook the potential benefits of transferring assets to your spouse or registered partner. Under UK tax law, transfers between spouses are exempt from CGT. So, by strategically transferring assets, particularly those expected to appreciate significantly, you can effectively double the CGT annual exemption. This means that both partners can use their exemption to potentially shield more gains from tax.

Investing through an ISA 

One of the most effective vehicles for tax-free investment is an Individual Savings Account (ISA). Capital gains realised within an ISA are completely exempt from CGT, making it an ideal choice for both lower-risk investments and higher-growth assets. Consider using your annual ISA allowance, which for the 2023/24 tax year is £20,000, to build a substantial nest egg while reducing your CGT exposure. 

Contributing to a Pension 

Contributing to your pension not only has immediate tax benefits but doing so can also shield more of your capital from future CGT. Pension funds are exempt from CGT, allowing your investments to grow tax-free until retirement, so this approach not only enables you to save for your future, but it also ensures that any gains realised within your pension are free from CGT. 

Consider professional advice 

Navigating capital gains tax does not have to be an overwhelming task. By implementing these strategies, doctors and dentists can significantly reduce their CGT liability while ensuring that their financial future remains secure. But to fully take advantage of all the ways you can reduce your capital gains tax liability, consider working with a financial adviser. 

At Dental & Medical Financial Services, we specialise in working with dental and medical professionals to identify tailored strategies for reducing CGT and maximising their wealth potential. If you want to explore how we can help, contact Dental & Medical Financial Services today. 

Free download Guide – Guide to minimising or even avoiding capital gains tax liabilities