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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5029
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I want to sell some shares and to minimise the CGT bill, I

Resolved Question:

I want to sell some shares and to minimise the CGT bill, I was going to re-invest some of the proceeds into a personal pension so as to keep me within the basic rate tax band. I was wondering if this might be against HMRC rules? If so, what is the maximum level I can safely contribute to my pension to minimise CGT (i.e. to avoid being challenged by HMRC)? (E.g. will it be considered 'pension recycling' or fall foul of the 'wholly and exclusively test'.)Here is an example (20016/2017 tax year) to illustrate...
My self-employment income: £30,000
Assume no savings or dividends income.
Personal allowance: £11,000
Gross pension contribution: £19,000
(Therefore I effectively pay no tax on my self-employment income and keep the full basic-rate band open for use by other income).My capital gains (after subtract costs): £43,100
CTG allowance: £11,100
Therefore taxable capital gains: £32,000
Upper limit of the basic rate band: £32,000
Therefore tax to pay on capital gains = £32,000 x 10% = £3,200I'm a sole trader and my self-employment income will likely be somewhere between £10,000 and £35,000.
In the 2015/2016 tax year I contributed £6250 (gross) into my pension.
Submitted: 1 year ago.
Category: Tax
Expert:  taxadvisor.uk replied 1 year ago.

Hello and welcome to JustAnswer. I am here to help you. I am reviewing your question and will respond to you shortly.

Expert:  taxadvisor.uk replied 1 year ago.

Thank you for your question.

Reinvesting proceeds from sale of shares into a personal pension plan would only reduce your capital gains tax payable if your total taxable income including the gains made remain within the threshold for basic rate of income tax.

Using these funds to make pension contributions as shown in your first example is workable as it reduces earned income (self-employed profit is earned income) and therefore income tax payable.

Pension contribution is based on your earnings for the tax year and is capped at £40,000.

More information on this can be found here

http://www.hmrc.gov.uk/tools/pension-allowance/

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 1 year ago.
Thank you for your reply. I understand the 'regular' limits on how much I am able to contribute to my pension (eg the £40K limit). My question was more about breaching other less common rules. I.e. if I am allowed to make a much larger than normal contribution to my pension in one tax year, soley for the purposes of reducing my tax bill from non earned-income sources (i.e. the selling of shares). Can you confirm that this is completely allowable under HMRC rules.
Expert:  taxadvisor.uk replied 1 year ago.

This you for your reply.

The relief is against earned income and not where the funds are coming from. You have profits to support the relief for pension contributions. This is completely allowable under HMRC rules.

I hope this is helpful and answers your question.

Expert:  taxadvisor.uk replied 1 year ago.

Hi there

Just checking if you have any more questions or need further clarification.

Many thanks

taxadvisor.uk and other Tax Specialists are ready to help you
Expert:  taxadvisor.uk replied 1 year ago.

I thank you for accepting my answer.

Best wishes