With Christmas just around the corner, what’s on your mind? Spending time with loved ones, New Year diets, or (curveball), how you can make the most of the current Capital Gains Tax (CGT) rates before they’re increased?
As mentioned in our previous article, the Office of Tax Simplification (OTS) has made several recommendations which, in general, aren’t good news for the taxpayer.
Much talked about is an increase to the CGT rates which could see them looking more like income tax rates in the future. Currently, if you own assets such as stocks and shares in quoted companies, any gain (if it exceeds your annual exemption) is often taxed at 20%. But now, this could double to 40%.
Also, the OTS has recommended removing the CGT uplift on death where there is an exemption for inheritance tax. At the moment, if you were to leave your assets to your spouse on death there is no inheritance tax due as there is a spouse exemption. Your spouse will benefit from an uplift of the base cost of the asset to market value for CGT, so the historic gain and tax liability just disappears.
A FESTIVE EXAMPLE
Imagine this. 30 years ago, Mr. Claus acquired some quoted shares for £1,000. They are now worth £100,000, so the tax, if he were to sell them, could be almost £20,000. If, however, he leaves them to Mrs. Claus in his will and then dies, the base cost becomes £100,000, and when Mrs. Claus sells the shares a week later after she has inherited them, there is no gain, and therefore, no tax.
The OTS recommendation is to remove this uplift so Mrs. Claus inherits the base cost of £1,000, so if she sells them the £20,000 may still be due.
SO, WHAT CAN YOU DO?
Here are our suggestions:
Consider selling assets to “bank” the current rates – you may then be able to buy the assets back either after 30 days, in your spouse’s name, or in another investment such as an ISA or pension.
Gift or sell assets to family or via a trust or company to trigger the gain.
Gift or sell assets to a trust or company, but where you can still benefit.
While it’s unlikely we’ll see Rishi Sunak in his Santa costume this year, he may have given us a bit of time before he introduces some of these recommendations, which could start to come through in the Spring Budget next year.
If you’d like to discuss any of the options above, please give me a call on 07786126268, or send me an email at firstname.lastname@example.org
Have a great Christmas.
Sarah Axe | Private Client Partner