Capital Gains Tax It was announced in yesterday’s Budget that the rates of Capital Gains Tax will be cut from 6 April 2016.
The higher rate of 28% is being reduced to 20% and the basic rate is being reduced from 18% to 10%. Sounds wonderful, and for gains on shares, for example, it is – but remember, it doesn’t apply to residential property. That’s a further disappointment for owners of buy-to-let.
A change of rate brings opportunities to secure lower tax, or obtain higher relief, when considering selling or transferring assets. Some ideas:
Individuals should consider delaying sales until after 5 April 2016, because this could lead to potential savings of 8% tax on the gain made. Crystallise any capital losses inherent in assets you hold, if you have already made Capital Gains during this tax year to 6 April 2016, which will be subject to the higher Capital Gains Tax rates.
- If an EIS investment has been made, capital gains arising on the disposal of other assets (which are equivalent to the amount of an EIS investment) can be deferred. Gains which occurred in the period 36 months before, or 12 months after, the EIS investment can be covered by the deferral.
- Non-UK domiciled individuals could delay remittances of foreign capital gains to the UK until after 6 April 2016, to benefit from the lower rates.
- Individuals returning to the UK may consider deferring their arrival to when the lower rates apply as they can be taxed on gains which arose in a non-UK resident period.
- Where distributions from offshore trusts are made to UK resident beneficiaries careful consideration should be made and advice taken. If any distribution payments are delayed until after 5 April 2016 this may help the beneficiary to pay less tax on the distribution. In addition it is possible the Government will implement changes to the taxation of benefits received from offshore trusts after 6 April 2017 in which case there would only be a one year window to take advantage of the lower CGT rate.
- Selling shares in a property–owning company, rather than residential property itself, may enable benefit from the lower rate of CGT. However, there are various risks associated with this route and other points to consider, such as running costs, not to mention that the Government could move to close this “loophole”
Heritage property relief for Inheritance Tax
Also announced in the Budget are changes to the way Heritage assets are treated where they have previously been allowed an exemption under Estate Duty. Where exemption from estate duty was granted before 26 March 1974, it remains in place until the object is sold. Previously, owners could benefit from the tax being postponed to current, lower rates of IHT. In future, HMRC can elect for either IHT or estate duty to be paid upon the asset’s sale. The rate of estate duty, which is likely to be chosen by HMRC, was in some cases as high as 85%. This aligns the position with the treatment for lifetime transfers and will apply to a chargeable event occurring on or after 16 March 2016. No last minute opportunity here, but still don’t sell the asset before taking advice.
Alongside this measure, there were two other changes. Firstly, a charge will be created on objects which are currently subject to an Estate Duty exemption and which have been lost unless the Commissioners are satisfied the loss was outside the owner’s control. Secondly, certain museums and public galleries that benefitted from the legislation will be brought back into the scope of the exemption. They are currently unable to benefit because of their status as independent charitable trusts but had been able to benefit when they were maintained by a local authority.
For more information please contact Clare Colacicchi on 01604 463317 or click here to email Clare.