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.

Gift Relief

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)

Lifetime Gifts

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%.

Death Estate

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 formbelow, visit our website www.egan.co.uk or call us on 01254 583515.

Inheritance Tax: Residence Nil Rate Band (RNRB)

At Egan Roberts Chartered Accountants & Financial Advisors we offer estate planning services including the related tax advice. It is important we now think carefully about the residence nil rate band (RNRB) when estate planning. Please read on if you would like to find out more.

What is the RNRB?

The RNRB was introduced in Finance Act 2015 and applies to deaths after 5 April 2017.

The basic nil rate band currently stands at £325,000 as it has since 6 April 2009 and will not change until 5 April 2021.

Rather than increase the £325k nil rate band to adjust for the effects of inflation and increases in house prices, the RNRB was announced.

The RNRB provides an additional nil rate amount when a person’s main residence is passed to their direct descendant on death.

It is worth noting here that the RNRB is only available on death; it cannot apply to a lifetime gift.

How much is the RNRB?

The RNRB is in addition to the basic nil rate band (£325k) and will be gradually introduced as follows:

Tax Year      RNRB
2017/18    £100,000
2018/19    £125,000
2019/20    £150,000
2020/21    £175,000

After 6 April 2021 the RNRB will increase annually in line with the consumer price index.

When is the RNRB available?

The RNRB is available when a qualifying residential interest is closely inherited.

A qualifying residential interest is a residential property which at some point was occupied by the deceased as their residence.

It will be closely inherited if it is passed to any of the following:
• The deceased’s children or grandchildren and their spouses
• Widowers of those children/grandchildren if they have not remarried
• Step-children, adopted or foster children
• Children for whom the deceased acted as guardian whilst they were under 18 years old

Other information

In the same way as the basic nil rate band, if a person does not use their RNRB in full, any unused percentage can be transferred to the surviving spouse to be used in addition to their own RNRB.

The RNRB will be reduced by £1 for every £2 by which the deceased’s net estate exceeds a threshold of £2m. This threshold will also increase in line with the consumer price index.

As many people move into a smaller home or into residential care, the RNRB is still available on the estate if the person sold their home on or after 8 July 2015.

We hope you found the above information useful. If you would like to discuss estate planning or inheritance tax further, please contact Egan Roberts on 01254 583515.

Further guidance and information is available at https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band