CGT

Question 1

CGT savings transfer between spouses

Answer 1

Sell asset without transferring

• Only one CGT exemption available.
• Gains in excess of CGT exemption will be taxed

Transferred

• Inter spousal exemption applies/ inherits base cost so no CGT payable on transfer.
• Two CGT exemptions can now be used.
• Spouse have losses to offset
• Spouse may be lower rate tax payer.
• BRT band extended gross gifts to charity;
• Potentially tax at 0% and 10/18% rather than higher.

Question 2

Comment on the suitability or otherwise of investing some of the proceeds of the business into (EIS) & (VCT) to minimise IT and IHT.

Answer 2

Income Tax

• VCT Div - free of Income Tax & don’t use £2k DivAll.
• EIS Div - taxable.

Income Tax Relief
* EIS and VCTs - 30% income tax relief combined relief limited to IT liability tax year of investment.
* Husband has no income in 2018/19 below PA so no tax liability in 2018/19 no tax relief would be available.
* Wife has tax liability in 2018/19 but will be reduced due to her pension contribution and her overall taxable income will reduce considerably next year.
* Carry back to the previous tax year is available for an EIS/carry back is not available for a VCT.
* Tax relief may be lost if disinvested within:
EIS - 3 years or
VCT - 5 years.

Inheritance Tax

• The business being sold currently benefits from BR. Investment into an EIS in wife’s name eligible for reinvestment relief/continue to benefit from BR as long as the funds are reinvested within three years of date of sale of the company.
• An EIS in spouse’s name will only benefit from BR after a two year period because the business is not in his name.
• VCTs are within the estate for IHT purposes.

Question 3

Holdover Relief (Father son example)

Answer 3

• Both jointly apply for holdover relief
• As a trading asset is being disposed of
• This holds over the gain by way of gift
• Defers paying CGT at the time of disposal
• Son inherits base cost
• So, increases son’s gain on subsequent disposal
• Father must not have any future interest as the settlor

• Relief only available if they jointly claim it and son is resident in UK

• If son ceases to be UK resident within 6 years, the gain then crystallises
• Son will need to wait 12 months before he could claim entrepreneur’s relief