22 Nov Gift It or Keep It? The Capital Tax Implications
At Egan Roberts Accountants based in Ribchester, Lancashire we can provide you with year round tax advice on capital gains tax and inheritance tax.
Capital Gains Tax (CGT)
CGT is the tax payable on the ‘gain’ you have made from selling an asset which has increased in value.
The gain (proceeds less cost) is reduced by your annual exempt amount of £11,100.
Any remaining gain is taxed at 10% if you are a basic rate tax payer or 20% if you are a higher rate tax payer.
If you have given the asset away or received less than market value proceeds, you may be able to claim gift relief.
This means the amount chargeable to CGT is the real proceeds you have actually received.
However, this only defers the CGT. The amount of gift relief claimed will become chargeable when the donee sells the asset.
So by reducing your gain, the donee will have a bigger gain later.
More information on gift relief is available here.
Entrepreneur’s Relief (ER)
There are certain criteria which must be met for you to qualify for ER.
The full list is set out here.
In summary, if you are selling all or part of your sole trade or partnership, you must have owned the business for at least 12 months prior to the sale. If you are selling shares (of which you hold at least 5% of total shares), the company must be trading and you must be an employee or officer of the company.
ER reduces the CGT rate to 10% regardless of whether you are a higher rate tax payer.
Gifts to Spouses / Charity
Any assets you gift or sell to your spouse or civil partner are not subject to CGT unless you separated and did not live together for the whole tax year or you have them goods for them to sell on as part of their business.
CGT is not charged on assets given to charity. You may pay some CGT if you sell an asset to charity for more than you paid for it but for less than market value.
Find further information about this here.
Inheritance Tax (IHT)
If you make a gift during your lifetime to a person, this is known as a PET (potentially exempt transfer), meaning no IHT is payable on the gift.
However, if the donor dies less than 7 years after making the gift, IHT then becomes chargeable at 40%.
If you leave the asset as part of your death estate rather than selling it or gifting it, IHT may be payable at 40%.
Items left to your spouse/civil partner/charity are exempt from IHT.
The value of your remaining estate chargeable to IHT could be reduced with the use of business property relief.
Everybody has a nil rate band of £325,000 which also reduces the amount chargeable to IHT.
This £325,000 is reduced by the gross chargeable transfers of any gifts made within the 7 years before death.
If your spouse did not use all or some of their nil rate band on their death estate, the amount unused can be transferred to you in addition to your £325,000.
The remaining value is then subject to IHT at 40%.
If you would like to get in touch with us, please use the contact form below, visit our website www.egan.co.uk or call us on 01254 583515.