Capital Gains and Inheritance Tax

You may need to pay Capital Gains Tax when you sell certain assets, such as property, shares or other types of investments such as art collections, valuable antiques or other objects of inherent worth.

A capital gain normally results after an asset or investment is sold, however capital gains can also result when a gift is given or if a competition prize has significant value.

Selling the home deemed as you main residence would not normally attract capital gains, however if you sell a second home such as a holiday home or rental investment this would be liable.

Capital Gains Tax is payable by both individuals and companies, there are however differences is the assessment of liability between both.

Calculating capital gains tax can be complex however in its basic form capital gains taxes are charged on the proceeds of a sale of assets, or the market value of a gift minus its original cost. Consideration is given for expenses that were encountered during the sale, for example if you had to do certain renovation work to a second home before selling it.

Capital Gains Tax Exemptions

Many organisations and businesses have lobbied for the abolishment of capital gains tax in certain key areas in a bid to stimulate higher levels of investment and to enable companies to offer key staff additional incentives. Although the capital gains tax doesn’t generate a huge sum of money compared to other taxes (£5Bn per year) it is unlikely to be abolished as this would potentially open up a huge tax loophole whereby businesses and individuals would be able to convert income into capital thus avoiding income taxes.

There have been a few changes one being the exemption of companies disposing of substantial shareholdings in both their primary and subsidiary businesses. The changes are designed to encourage companies to restructure quickly in response to new market opportunities.

Restructuring Incentives

If a company wishes to restructure for commercial reasons it will be able to do so without being constrained by commercial gains tax.

General Capital Gains Tax Exemptions

Betting, lottery and pools winnings

Private Car

Jewellery and antiques that are worth less in value that £6000.00

Capital gains tax has also been reduced on the sale of stocks to encourage greater employee share ownership and to make it attractive for talented business managers to join fast growing companies.

Inheritance Tax

Inheritance tax affects a greater percentage of the UK population every year. The primary reason being that increases in the inheritance tax thresholds have failed to raise in-line with UK house prices.

To all intents and purposes inheritance tax can be considered to be a death duty and without careful planning it is quite easy to leave your loved ones with a very large tax bill.

Inheritance tax has to be paid by the executors of your will after your death.

The value of an estate above £3,000 for tax year 2004 & 2005 is taxed at 40%

Tax Consultants Guide tips to avoid inheritance tax

Plan well ahead seek the advice of a professional tax and financial consultant

Remember gifts are only valid if they are given 7 years before your death

You should always take advantage of your spouse’s £3,000 tax free threshold

Set up a discretionary trust, once the assets are transferred to the trust fund, you no longer have legal rights to, or ownership of them. However, you can maintain control by appointing the trustee. The capital you put into the trust stays there until the time stipulated by you for funds to be paid out or until such time as the trustees decide to do so.