Capital Gains Tax is a tax charged on the capital increase in the value of a person’s assets. Most commonly this is a tax on the sale or disposal of property, shares and business assets. A disposal covers any change of ownership including a gift or a sale at less than market value or a transfer into a trust.

Capital Gains Tax is not charged on transfers or gifts between spouses or civil partners and planning before a sale or disposal of an asset by one spouse/civil partner can save tax in the future.

Each individual has an annual allowance of £9,200 before Capital Gains Tax is charged. After the annual allowance has been used and any allowances for indexation of the gain (formerly called taper relief) have been deducted, the excess gain is taxed at the highest rate of income tax of the individual selling or disposing of the asset.  Your main residence is exempt from Capital Gains Tax but you will need to be careful if you own more than one property.

Capital Gains Tax affects many situations, some of which are detailed below:-

• Assets held by Trustees pay Capital Gains Tax at the rate of 40%.  It is therefore essential to ensure that the gains of a trust are properly managed on an annual basis in order to maximize tax savings

• On a person’s death, all capital gains in the assets belonging to the estate are exempt from Capital Gains Tax although Capital Gains Tax needs to be considered when assets are to be transferred to beneficiaries – e.g. shares – or sold by the executors of the estate.

Another important Capital Gains Tax relief is hold-over relief which is where tax may be deferred usually until the recipient disposes of the asset and can apply to business assets and in situations where a charge to Inheritance Tax may arise – such as when assets are transferred into a discretionary or lifetime trust.

For further advice and information regarding Capital Gains Tax and how to mitigate its effects, please contact Karen Law on 01943 885107 or email karen.goor@ridingslaw.com.