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Do you own assets that will eventually be passed on to your children? Are you worried about inheritance tax? The problem — capital gains tax (CGT) & inheritance tax (IHT) Many parents throughout the UK wish to transfer assets to their children now to avoid inheritance tax (IHT) in the future and we receive many calls from clients and non-clients who have heard about lifetime transfers. Basically, if you transfer assets up to the IHT threshold and survive for seven years after the transfer, then that transfer will not form part of the IHT liability upon your passing. Unfortunately, however, parents still have to pay capital gains tax (CGT) on any transfers made between them and their children, even if the transfer is a gift. HMRC deems that any gifts of assets are liable for CGT at market value. If an asset is valued at £100,000 and is given to a child for no consideration, then the £100,000 is what is used to determine the CGT liability. This causes people a huge headache as they know that their assets may be subject to IHT if they do not act quickly, but even if they do, their assets are subject to CGT. Can you relate to the above? A real life client example — John passing assets to his son James For the purpose of this article we are going to name my client John to protect his identity. John has £1.5m of assets, of which £1m is in residential properties and £500K is the net asset value of his trading business. He wishes to set up his son James (20) in business to give him a head start in life as university is not on the agenda for him. John thinks about transferring all of the residential properties and the business to his son so that he can leave the UK for a sunnier climate. John knows that making such transfers will help him mitigate IHT if he survives for seven years afterwards. At the time of writing the transfer limit was £325,000 and the IHT threshold upon death is also £325,000. This means that James would have to pay 40% tax on any excess over £750,000. Ultimately this would mean selling off some assets. Transfers to mitigate CGT and IHT As we have identified, there are £500,000 nets assets in his business. John can transfer the business to his son and claim gift relief, meaning that John does not pay CGT but his son will have a deemed cost of £0. This means that James will have to pay more CGT in the future — he will pay CGT not only on the increase in value of the business during the time he has owned it, but also the deferred amount due when it was gifted to him. An example of how gift relief works was included in this article. When it comes to the residential properties, John considers a transfer up to the lifetime transfer value of £325,000, half of the residential property value, but then realises he would have to pay CGT upon such a transfer. Remember, however, that John has an annual capital gains exemption of £11,100, which means that any gain below this amount would be CGT-free. John could therefore consider transferring one or two properties to his son per year to take advantage of this allowance. Practical steps you should now take to mitigate IHT and CGT It is one thing to understand the theory but it is another to put it into practice. This is why I have written a step-by-step guide to implementing this strategy: Identify the nets asset value of your trading business assets and transfer those using gift rollover relief Transfer assets over time that are not trading assets to utilise your capital gains exemption

Do you own assets that will eventually be passed on to your children? Are you worried about inheritance tax? The problem — capital gains tax (CGT) & inheritance tax (IHT)Many parents throughout the UK wish to transfer assets to their children now to avoid inheritance tax (IHT) in the future and we receive many calls from clients and non-clients who have heard about lifetime transfers. Basically, if you transfer assets up to the IHT threshold and survive for seven years after the transfer, then that transfer will not form part of the IHT liability upon your passing. Unfortunately, however, parents still have to pay capital gains tax (CGT) on any transfers made between them and their children, even if the transfer is a gift. HMRC deems that any gifts of assets are liable for CGT at market value. If an asset is valued at £100,000 and is given to a child for no consideration, then the £100,000 is what is used to determine the CGT liability. This causes people a huge headache as they know that their assets may be subject to IHT if they do not act quickly, but even if they do, their assets are subject to CGT. Can you relate to the above? A real life client example — John passing assets to his son JamesFor the purpose of this article we are going to name my client John to protect his identity. John has £1.5m of assets, of which £1m is in residential properties and £500K is the net asset value of his trading business. He wishes to set up his son James (20) in business to give him a head start in life as university is not on the agenda for him. John thinks about transferring all of the residential properties and the business to his son so that he can leave the UK for a sunnier climate. John knows that making such transfers will help him mitigate IHT if he survives for seven years afterwards. At the time of writing the transfer limit was £325,000 and the IHT threshold upon death is also £325,000. This means that James would have to pay 40% tax on any excess over £750,000. Ultimately this would mean selling off some assets. Transfers to mitigate CGT and IHTAs we have identified, there are £500,000 nets assets in his business. John can transfer the business to his son and claim gift relief, meaning that John does not pay CGT but his son will have a deemed cost of £0. This means that James will have to pay more CGT in the future — he will pay CGT not only on the increase in value of the business during the time he has owned it, but also the deferred amount due when it was gifted to him. An example of how gift relief works was included in this article. When it comes to the residential properties, John considers a transfer up to the lifetime transfer value of £325,000, half of the residential property value, but then realises he would have to pay CGT upon such a transfer. Remember, however, that John has an annual capital gains exemption of £11,100, which means that any gain below this amount would be CGT-free. John could therefore consider transferring one or two properties to his son per year to take advantage of this allowance. Practical steps you should now take to mitigate IHT and CGTIt is one thing to understand the theory but it is another to put it into practice. This is why I have written a step-by-step guide to implementing this strategy: Identify the nets asset value of your trading business assets and transfer those using gift rollover relief Transfer assets over time that are not trading assets to utilise your capital gains exemption

The problem — 28% CGT is a lot of tax to pay I wrote an extensive article about the budget changes and how many residential property investors, especially higher rate taxpayers, have been targeted by George Osborne in the following ways: The reduction of mortgage interest relief to a basic rate taxpayer level of 20% The removal of the 10% wear and tear allowance The new 3% stamp duty land tax (SDLT) surcharge for additional properties There are many other issues identified within the article but the above three “features” can be crushing to the point where you can make a loss on your property portfolio and still pay tax. This, in my opinion, is wrong but we have to work with it or leave the sector. If you are thinking of leaving the residential property investment market then you need to consider capital gains tax (CGT). George Osborne also recently announced that CGT rates will be decreased from 18% to 10% for basic rate taxpayers and from 28% to 18% for higher rate taxpayers. On the face of it, you may think this is good news, but the devil in the detail reveals that George has singled out residential property investors again and stated that these discounts do not apply to them. Therefore residential property investors will still pay 18% CGT if they are basic rate taxpayers and 28% CGT if they are higher rate taxpayers. You could be forgiven for feeling rather paranoid about these tax changes and the way the government seems to be targeting landlords. Don’t forget, however, that each person still gets an £11,100 capital gains exemption for 2016-17. Ways to minimise your CGT liability The below list is based on non-trading assets, i.e. residential property investments. There are other allowances that may be claimed for trading business assets, which I have detailed in another article. Use your spouse’s capital gains exemption and allowances using a deed of trust Spread the property sales over time to utilise your annual capital gains exemptions Contribute towards your pension to get income tax relief to reduce the overall tax burden Invest in Venture Capital Trusts (VCTs) Invest into an Enterprise Investment Scheme (EIS) Invest into a Seed Enterprise Investment Scheme (SEIS) Many property investors do not use their spouse’s capital gains exemptions. You may be in a position where you are a higher rate taxpayer and your spouse either pays no tax at all or is a basic rate taxpayer. As such you could be losing out on their £11,100 capital gains exemption and paying 10% more tax than you need to. There is a way to split the percentage of ownership to ensure that you utilise your personal capital gains exemption while minimising the percentage of CGT payable. I would suggest that you speak with your accountant about this. If you spread your property sales over time then you could take advantage of the £22,200 in capital gains exemptions (assuming you are married) available each year. If you invest the entire gain into one of the last four options then you would be able to mitigate the entire CGT liability, provided you meet the various requirements identified within each type of investment. Please note that I am not suggesting that you invest in any type of investment specifically, rather showing the tax reliefs that may be obtained if you choose to do so. There will be a degree of risk with any type of investment, which is mirrored by the below income tax reliefs. The higher tax relief often relates to the additional risk you take. You should speak with an FCA regulated financial adviser before embarking on any investment. Income tax reliefs for each type of investment In addition to the CGT mitigation, you will also receive income tax relief on the investment that you make as follows: 30% income tax relief for VCT investment up to a maximum investment of £200,000 30% income tax relief for EIS investment up to a maximum investment of £1,000,000 50% income tax relief for SEIS investment up to a maximum investment of £100,000 Please note that pension contributions will also provide you with income tax relief — my previous article provides more details on this. I also wrote a more detailed article on investing in EIS.

Are you looking to sell a property and are you worried about capital gains tax (CGT)? Was it once your main home and if so, would you move back into the property? The problem — 28% CGT is a lot of tax Given the recent budget changes you may be thinking about selling one or more investment properties. The unfortunate thing is that as property prices increase — if that can be considered unfortunate — then so does the CGT payable when you sell and if you’re a higher rate taxpayer you’ll pay 28% on any gains. Let me first state that each person owning the property will get an annual capital gains exemption of £11,100 for the year 2016-17. If you are married and the property is in one person’s name only, then it is a good idea to use a deed of trust at least a day before the sale so that you can claim two allowances (couples only). If this is applicable to you please read my article on this. I previously wrote an article about Private Residence Relief (PRR), which demonstrated that tax is only chargeable on the periods that you were not living in the property. I also outlined a number of reliefs as follows: 0% tax on the time you lived in the property 0% on the last 18 months of ownership (deemed to have been living there even if rented out) You would also get lettings relief as shown below (the lower of): the amount of PRR already calculated, or £40,000, or the amount of any chargeable gain you make because of the letting (calculated as a fraction of the gain – the fraction being the period of letting/divided by the period of ownership). This will help you to significantly reduce your CGT liability. Example: You bought your house in December 2002 and sold it in December 2015, owning it for 13 years. You lived in the property as your only or main residence from December 2002 to December 2008 (six years). It was then let as residential accommodation from January 2009 to December 2011 (three years) and then empty until sold at a gain of £150,000. You are entitled to PRR for seven-and-a-half years (six years of residence plus the final 18 months) out of 13 years. This part of the gain is £86,538 (7.5/13 x £150,000). Your remaining gain is £63,462. The lowest of the three limits set out above is the gain by reason of the letting £34,615 (3/13 x £150,000) so you are entitled to further letting relief of £34,615. Your chargeable gain will be £28,847. Move back into the property to get additional reliefs You can also reduce your CGT liability if you move back into a property which you previously had as your main home. If you have another dwelling house eligible for relief, for example, a house or flat which you bought or rented as your home while absent, you will need to make a nomination in favour of the original dwelling house, if you want the period of absence to be treated as a period of residence at that house. The qualifying periods of absence are: a. absences for whatever reason, totalling not more than three years in all b. absences during which you are in employment and all your duties are carried on outside the UK. The distance from your place of work prevents you living at home, or your employer requires you to work away from home in order to do your job effectively c. absences totalling not more than four years when the distance from your place of work prevents you living at home or your employer requires you to work away from home. You will keep the exemption for absences b. and c. if you cannot return to your house afterwards because your existing job requires you to work away again. The absences at b. and c. will also apply if the employment was that of your spouse or civil partner. Example: You bought a house in 1984 and used it as your only or main residence. In 1985 your employer required you to work abroad and you did not come back to the house until 1990. You lived in the house again as your only or main residence until you sold it in 2013. You are entitled to full relief.

Are you looking to sell a property and are you worried about capital gains tax (CGT)? Was it once your main home and if so, would you move back into the property? The problem — 28% CGT is a lot of taxGiven the recent budget changes you may be thinking about selling one or more investment properties. The unfortunate thing is that as property prices increase — if that can be considered unfortunate — then so does the CGT payable when you sell and if you’re a higher rate taxpayer you’ll pay 28% on any gains. Let me first state that each person owning the property will get an annual capital gains exemption of £11,100 for the year 2016-17. If you are married and the property is in one person’s name only, then it is a good idea to use a deed of trust at least a day before the sale so that you can claim two allowances (couples only). If this is applicable to you please read my article on this. I previously wrote an article about Private Residence Relief (PRR), which demonstrated that tax is only chargeable on the periods that you were not living in the property. I also outlined a number of reliefs as follows: 0% tax on the time you lived in the property 0% on the last 18 months of ownership (deemed to have been living there even if rented out) You would also get lettings relief as shown below (the lower of): the amount of PRR already calculated, or £40,000, or the amount of any chargeable gain you make because of the letting (calculated as a fraction of the gain – the fraction being the period of letting/divided by the period of ownership). This will help you to significantly reduce your CGT liability. Example: You bought your house in December 2002 and sold it in December 2015, owning it for 13 years. You lived in the property as your only or main residence from December 2002 to December 2008 (six years). It was then let as residential accommodation from January 2009 to December 2011 (three years) and then empty until sold at a gain of £150,000. You are entitled to PRR for seven-and-a-half years (six years of residence plus the final 18 months) out of 13 years. This part of the gain is £86,538 (7.5/13 x £150,000). Your remaining gain is £63,462. The lowest of the three limits set out above is the gain by reason of the letting £34,615 (3/13 x £150,000) so you are entitled to further letting relief of £34,615. Your chargeable gain will be £28,847. Move back into the property to get additional reliefsYou can also reduce your CGT liability if you move back into a property which you previously had as your main home. If you have another dwelling house eligible for relief, for example, a house or flat which you bought or rented as your home while absent, you will need to make a nomination in favour of the original dwelling house, if you want the period of absence to be treated as a period of residence at that house. The qualifying periods of absence are: a. absences for whatever reason, totalling not more than three years in all b. absences during which you are in employment and all your duties are carried on outside the UK. The distance from your place of work prevents you living at home, or your employer requires you to work away from home in order to do your job effectively c. absences totalling not more than four years when the distance from your place of work prevents you living at home or your employer requires you to work away from home. You will keep the exemption for absences b. and c. if you cannot return to your house afterwards because your existing job requires you to work away again. The absences at b. and c. will also apply if the employment was that of your spouse or civil partner. Example: You bought a house in 1984 and used it as your only or main residence. In 1985 your employer required you to work abroad and you did not come back to the house until 1990. You lived in the house again as your only or main residence until you sold it in 2013. You are entitled to full relief. Next steps — contact us to minimise your CGT liabilityIf you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar. Please use the redeem code “Article 33” to get 33% off your next consultation call. If you are looking for a new accountant then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.

Apologies for posting more than one post on a similar issue. But each are slightly different and situations I am currently faced with. My family home which was lived in as a residential property for 24 years. Then it has been rented out for the next 6 years. It was bought for approximately £60,000 and is now worth approximately £450,000. We are now looking to sell the property. We are considering our options, but need to consider the following: How much capital gains would we have to pay? Would the 24years as a residential property affect this figure at all? If we were to move back in, how long would we have to live there before it became classed as residential property, and not have to pay CGT? Thanks in advance for any help/ information.

Folks, For non residents the government has announced that Capital Gains Tax (CGT) will now be payable on UK property sold by overseas residents and offshore companies. The legislation requires the payment of CGT on any gain from 6th April 2015 until the date of disposal of the property. However, the CGT is due only on gains in value accrued from 6th April 2015. Apparently it is recommended to obtain a valuation on the property before 6th April 2015 (true?) Now I need some advice to make sure the surveyors is fully accredited and the valuation will be accepted by HMRC. Can anyone suggest an accredited surveyor firm? I heard about "RICS registered surveyors" and "RICS Red Book Valuation Certificate" that is apparently accepted by HMRC. Any info on that? Thanks Antoine

Some 25 years ago I bought a house for £76,500 in Winchester. At the time my parents thought it was a bad purchase. I lived in the house for about 3 or 4 years. And since then it has been let out. At the moment I get £18k from it per year, every year without any missed payments due to students. The house is in very good condition and is now worth in the region of £290-£320k. I have no debt on this property. Is it possible for me to move back into this house for 6 months (or a tad longer) and have this as my main residence and avoid CGT ? Mmmm... I've just done a search and found http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm And it does not look like I can. But it does look like I can get a thing called 'Letting Relief' I think I need to research this... Any comments would be appreciated....