Capital Gains Tax (CGT) becomes payable when you sell an asset for more than you originally bought it for – or in other words when you sell it and make a profit. There are a number of ways to reduce the amount of CGT you have to pay though and the main ones are outlined below.

Split the asset with your spouse
Each person has an annual CGT exemption of £9600 (correct for the year 2008-09) and so any profit below this figure is not liable for tax. For larger profits you can divide assets, such as shares and properties, between yourself and your spouse so that you can make use of both your annual exemption and theirs. The transfer of assets has to be completed before the sale goes through and you do have to be legally married for this to apply.

Take any losses into account
If you sell one asset and make a loss then an amount equivalent to the loss can be added to your annual exemption. So for example, if you sell shares for a £2000 loss then this £2000 can be added to your exemption and you can make a gain on another asset of up to £11,600 before tax becomes an issue.

Deduct your expenses
You can deduct certain expenses from the capital gain that were incurred during the purchase of the asset or the subsequent selling. So if you had to pay fees while buying property or stamp duty during the selling process, these expenses can be subtracted from the capital gain before you calculate the taxable profit.

Use the Taper Relief Scheme
The Taper Relief Scheme basically says that the longer you hold on to your asset or investment, the less capital gains tax you have to pay on the profit. This means that if you buy shares now and sell them for a profit next year you will have to pay CGT on 100% of the profit you make. If however you hold on to the shares for over 10 years, you’ll only have to pay CGT on 60% of the profit you make. The percentage you pay decreases according to a tapering scale from year to year and so the longer you leave it before selling the more profit you hold on to.

Sell the asset or investment gradually
Some investments, such as stocks and shares, can be sold over a number of years rather than all at the same time. By doing this you can use two or three annual exemptions and so reduce your CGT down to nothing. For example, if you make a £30,000 profit on shares then you can sell them in three batches a year apart so the profit you make on each batch doesn’t exceed the individual annual exemption. This can be a risky business though as the price of shares can go down as well as up and the second year’s profit may dwindle to nothing.

Not everyone will come face to face with Capital Gains tax during their lifetime however for those that do these tips are a good starting point. It is probably worth hiring the services of a good accountant as well as they will be able to find a number of reliefs, allowances and exemptions that go above and beyond the ones mentioned here.