Capital Gains Tax
The thresholds for capital gains tax (CGT) have increased slightly for 2013/14:
Annual exemption: £10,900 (2012/13: £10,600)
Annual exemption for most trustees and personal representatives: £5,450 (2012/13: £5,300)
Rate for gains within the basic rate band: 18% (no change)
Rate for gains above the basic rate band: 28% (no change)
Rate for gains subject to entrepreneurs' relief: 10% (no change)
Lifetime limit for gains subject to entrepreneurs' relief: £10 million (no change)
Selling to Employees
When a business owner sells his business, they can qualify for entrepreneurs' relief if they sell the whole business, or a significant part which can be operated as a separate business. This relief reduces the tax payable on the sale to 10%.
The Government is proposing a new capital gains relief to encourage business owners to sell a controlling interest in a business to the employees who have worked in the business. This new tax relief will not apply until April 2014.
Seed Enterprise Investment Scheme (SEIS)
The SEIS was introduced for investments made in small new trading companies from 6 April 2012, with a limit on investments under the scheme of £150,000 per company. Each investor can subscribe for up to £100,000 of SEIS shares per tax year and get 50% income tax relief.
If that investment is funded using a capital gain made in 2012/13, 100% of the reinvested gain is exempt from CGT. The CGT exemption was to be limited to investments made only in 2012/13, but it has been extended for two further years at the rate of 50% of the gain, not 100% of the gain. This is still a significant tax saving.
The original SEIS rules contained a serious trap for investors. A company acquired from a formation agent could not qualify; it had to be incorporated with individuals rather than another company as the original subscribers. This administrative niggle has been removed for shares issued from 6 April 2013, but not for companies formed earlier.
Inheritance Tax
The inheritance tax (IHT) nil rate band will remain frozen at £325,000 until 2017/18. This is the amount of a deceased person's estate that is free of inheritance tax.
The estate value is arrived at after deducting any debts owed by the deceased, and the value of any assets that qualify as business property, agricultural property or woodlands. A number of tax schemes exist to make use of these deductions for debts to reduce the value of the deceased's estate on death, and hence reduce the IHT payable. To block such tax avoidance schemes the deduction of debts from the value of an estate will be prevented where:
- the debt is not repaid to the creditor; or
- the loan was used to acquire property which is exempt from IHT.
These changes will apply from the date Finance Act 2013 is passed.
Showing posts with label Capital Gain Tax. Show all posts
Showing posts with label Capital Gain Tax. Show all posts
Thursday, 21 March 2013
Wednesday, 5 September 2012
Gifting Assets or Shares
If you plan to gift assets or shares to your relatives, there are several taxes you need to consider:
Capital Gains Tax
You won't make an actual profit or gain when you give away assets or shares, so you may not expect to pay capital gains tax. However, when the gift is made to a person connected to you, such as your son or daughter, UK tax law deems you to have made a transfer of the asset at its market value. This means you could well make a paper gain on the gift, which will be subject to capital gains tax. This does not apply to a gift to your spouse or civil partner.
You need to calculate this gain to see if it needs to be reported on your tax return. Where the gain from the gift, together with any other gains you make in the year, exceeds your annual exemption of £10,600, all those gains must be reported on your tax return.
To calculate the amount of the gain you need to know the market value of the items given, at the date of the gift, and the cost or value when you acquired the items. If you acquired the assets before 31 March 1982, the value at 31 March 1982 is taken as your cost value, so you need a value at that date as well. We can help you with the calculation of the gain, but it would be wise to engage a specialist valuer to determine the value of the assets (particularly property) at the date of the gift and at 31 March 1982 if required.
Gift tax
If the asset (such as property) you plan to give away is located in another country you need to take local tax advice as to whether gift tax will apply. This is not a tax we have in the UK, so any gift tax paid in another jurisdiction will not be offset against UK tax paid on the same gift. Local transaction taxes such as VAT or stamp duty may also apply, so do your research first.
Stamp Duties
Stamp duty does not apply to shares which are transferred as a gift.
Stamp duty land tax generally applies to the transfer of land in the UK, but it will not apply if the recipient gives nothing in return for the property, i.e. it is a pure gift. However, if the recipient agrees to take on a mortgage attached to the property, the outstanding value of that mortgage will be treated as consideration for the property and stamp duty land tax will apply to that consideration.
Inheritance Tax
Most gifts of assets you make will be treated as potentially exempt transfers for inheritance tax, which means they escape inheritance tax as long as you live for at least seven years after the date of the gift. You can look to take out insurance to cover the cost of inheritance tax that will become payable in respect of the gifts made during your lifetime. Gifts made into a trust may be subject to inheritance tax immediately.
Capital Gains Tax
You won't make an actual profit or gain when you give away assets or shares, so you may not expect to pay capital gains tax. However, when the gift is made to a person connected to you, such as your son or daughter, UK tax law deems you to have made a transfer of the asset at its market value. This means you could well make a paper gain on the gift, which will be subject to capital gains tax. This does not apply to a gift to your spouse or civil partner.
You need to calculate this gain to see if it needs to be reported on your tax return. Where the gain from the gift, together with any other gains you make in the year, exceeds your annual exemption of £10,600, all those gains must be reported on your tax return.
To calculate the amount of the gain you need to know the market value of the items given, at the date of the gift, and the cost or value when you acquired the items. If you acquired the assets before 31 March 1982, the value at 31 March 1982 is taken as your cost value, so you need a value at that date as well. We can help you with the calculation of the gain, but it would be wise to engage a specialist valuer to determine the value of the assets (particularly property) at the date of the gift and at 31 March 1982 if required.
Gift tax
If the asset (such as property) you plan to give away is located in another country you need to take local tax advice as to whether gift tax will apply. This is not a tax we have in the UK, so any gift tax paid in another jurisdiction will not be offset against UK tax paid on the same gift. Local transaction taxes such as VAT or stamp duty may also apply, so do your research first.
Stamp Duties
Stamp duty does not apply to shares which are transferred as a gift.
Stamp duty land tax generally applies to the transfer of land in the UK, but it will not apply if the recipient gives nothing in return for the property, i.e. it is a pure gift. However, if the recipient agrees to take on a mortgage attached to the property, the outstanding value of that mortgage will be treated as consideration for the property and stamp duty land tax will apply to that consideration.
Inheritance Tax
Most gifts of assets you make will be treated as potentially exempt transfers for inheritance tax, which means they escape inheritance tax as long as you live for at least seven years after the date of the gift. You can look to take out insurance to cover the cost of inheritance tax that will become payable in respect of the gifts made during your lifetime. Gifts made into a trust may be subject to inheritance tax immediately.
Tuesday, 13 July 2010
Applying New CGT Rules
The June Budget introduced some complex changes to capital gains tax (CGT) that apply from 23 June 2010. For disposals made on or after that date there are now three alterative tax rates for individuals.
Taxable income and gains after deduction of allowances up to £37,400 are taxed at 18%. Those over the £37,400 limit are taxed at 28% and gains subject to entrepreneur's relief are taxed at 10%.
The old CGT rate of 18% applies to all capital gains made by individuals and trustees from 6 April 2008 to 22 June 2010 inclusive, irrespective of the amount of the gain or the person's level of income. Trustees pay CGT at 28% on all gains made on or after 23 June 2010 irrespective of the level of income of the trust.
The new higher rate of 28% only applies to individuals where their total taxable income and gains exceed the higher tax rate threshold of £37,400. That sum includes the total income for the full tax year less allowances and all allowable deductions, plus all capital gains made on or after 23 June less your annual CGT exemption of £10,100. Any gains made before 23 June 2010 are not included in this total. You can choose how to set-off any losses and your annual CGT exemption so you pay the minimum amount of tax. This is best illustrated by an example:
Example
Sid's taxable income for 2010/11 is £27,400 after his personal allowance and all tax allowable expenses have been deducted. He sold a property in May 2010 that made a gain of £17,000, and sold another property in November 2010 for a gain of £25,100. Neither property qualifies for entrepreneurs' relief or for the exemption as his main residence. Sid has no capital losses to use in 2010/11. The CGT on those gains is calculated as follows:
The first gain of £17,000 in May 2010 will be taxed at 18%. The second gain in November 2010 of £25,100 plus his taxable income of £27,400 exceed the higher rate threshold of £37,400 by £15,100 and are liable to the higher 28% rate. As such it makes sense to deduct the CGT annual exemption of £10,100 from the second gain so that only £5,000 of the gain is taxed at 28%. The remainder of the gain of £10,000 will be taxed at 18%. If Sid has any CGT losses he could also have chosen to offset those against the second gain to maximise relief at 28% rather than 18%.
Taxable income and gains after deduction of allowances up to £37,400 are taxed at 18%. Those over the £37,400 limit are taxed at 28% and gains subject to entrepreneur's relief are taxed at 10%.
The old CGT rate of 18% applies to all capital gains made by individuals and trustees from 6 April 2008 to 22 June 2010 inclusive, irrespective of the amount of the gain or the person's level of income. Trustees pay CGT at 28% on all gains made on or after 23 June 2010 irrespective of the level of income of the trust.
The new higher rate of 28% only applies to individuals where their total taxable income and gains exceed the higher tax rate threshold of £37,400. That sum includes the total income for the full tax year less allowances and all allowable deductions, plus all capital gains made on or after 23 June less your annual CGT exemption of £10,100. Any gains made before 23 June 2010 are not included in this total. You can choose how to set-off any losses and your annual CGT exemption so you pay the minimum amount of tax. This is best illustrated by an example:
Example
Sid's taxable income for 2010/11 is £27,400 after his personal allowance and all tax allowable expenses have been deducted. He sold a property in May 2010 that made a gain of £17,000, and sold another property in November 2010 for a gain of £25,100. Neither property qualifies for entrepreneurs' relief or for the exemption as his main residence. Sid has no capital losses to use in 2010/11. The CGT on those gains is calculated as follows:
The first gain of £17,000 in May 2010 will be taxed at 18%. The second gain in November 2010 of £25,100 plus his taxable income of £27,400 exceed the higher rate threshold of £37,400 by £15,100 and are liable to the higher 28% rate. As such it makes sense to deduct the CGT annual exemption of £10,100 from the second gain so that only £5,000 of the gain is taxed at 28%. The remainder of the gain of £10,000 will be taxed at 18%. If Sid has any CGT losses he could also have chosen to offset those against the second gain to maximise relief at 28% rather than 18%.
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