Tax 2

Question 1

What is exempt from CGT?

Answer 1

• an individual’s principal private residence (PPR)
• gifts between spouses and civil partner
• gifts to registered charities
• government and qualifying corporate bonds
• premium bonds
• assets held in ISAs, junior ISAs (JISAs) and child trust funds (CTFs)
• most pension investments
• proceeds from most life policies, written in trust or in the hands of the original owner
• chattels (tangible moving objects) where the disposal proceeds do not exceed £6,000
• a chattel which is deemed a ‘wasting asset’ (ie, it has an expected useful life of less than 50 years)
• private motor vehicles
• betting, lottery or pools winnings
• foreign currency, when for own personal use out
• shares in venture capital trusts (VCTs), provided the company maintains its VCT status and certain specified criteria have been satisfied
• shares in enterprise investment schemes (EISs) and seed enterprise investment scheme (SEIS),

Question 2

What is the CGT exemption?

Answer 2

For 2024–25, this allowance is £3,000

Question 3

What are CGT rates?

Answer 3

10% for basic rate taxpayers

20% for higher and additional rate taxpayers.

Question 4

What are CGT rates for additional residential properties?

Answer 4

18% for basic rate taxpayers

24% for higher and additional rate taxpayers.

Question 5

How does Business asset deposit relief (BADR) work?

Answer 5

• reduces the rate of CGT to 10% on all gains on qualifying assets, up to a maximum asset value of £1 million over an individual’s lifetime.
• an individual has to be a sole trader or business partner of a company that they have owned for at least two years

Question 6

What are the CGT exemptions for trustees of trust and how much CGT is payable?

Answer 6

• For personal representatives of deceased persons and trustees of certain settlements for vulnerable people, it is the same as for individuals (ie, £3,000).
• For most others, though, it is half the level for individuals (ie, £1,500).
• Gains above the allowance are taxed at 24% on residential property and 20% on all other assets.

Question 7

How can losses be offset against CGT?

Answer 7

• losses must be used first in the year in which they are realised, before applying any portion of the CGT allowance.
• Any remaining losses that are not used in that specific year can then be carried forward indefinitely

Question 8

CGT for OEICs, Unit Trusts and ETFs?

Answer 8

• Capital gains made within an OEIC are exempt from tax.
• Capital gains made by a taxpayer on any disposal of the OEIC are liable for CGT

Question 9

CGT for Investment Trusts?

Answer 9

• Providing they comply with the relevant rules, investment trusts do not pay CGT on internal gains.
• An investor in an investment trust may be liable to CGT on any gains they make on disposal of it.

Question 10

CGT for REITs?

Answer 10

• REITs are not subject to CGT on gains made on the disposal of property, providing that they distribute at least 90% of their profits each year to shareholders as dividends.
• Investors disposing of a holding in a REIT may be liable to CGT on any gains made

Question 11

How are transfers of wealth into trusts treated for IHT?

Answer 11

• Transfers of wealth into trusts are treated as potentially exempt transfers (PETs), and are therefore excluded from the donor’s estate for IHT purposes if they survive seven years from the date of making the transfer.
• A transfer of wealth into a DISCRETIONARY trust is deemed to be a chargeable lifetime transfer (CLT) and may be subject to an IHT charge if it causes the individual’s IHT allowance to be exceeded at the date the transfer is made

Question 12

How much is IHT?

Answer 12

40% (or a reduced rate of 36% if more than 10% of the net estate is left to a registered charity).

Question 13

What is the NRB and the RNRB?

Answer 13

£325,000 (frozen until 2025–26) - Any unused NRB is transferred to any surviving spouse or civil partner.

£175,000 (frozen until 2025–26) (The RNRB is tapered for estates with a net value over £2 million by £1 for every £2 over this threshold. This means that an estate valued at £2.35 million or above will not benefit from the RNRB)

Question 14

What is the annual exemption for lifetime transfers?

Answer 14

£3,000 per tax year (can be carried forward one year only.)

Question 15

What is the small gifts exemption for lifetime transfers?

Answer 15

£250

Question 16

What is the marriage gifts exemption for lifetime transfers?

Answer 16

£5,000 from a parent

£2,500 from a grandparent or great-grandparent

£1,000 from any other person

Question 17

What are the qualifications for gifts to political parties?

Answer 17

A political party qualifies if they have at least one MP (or two in the House of Commons)

and 150,000 votes at the last election before the gift was made.

Question 18

What is the quarter up rule for quoted shares and securities in regard to IHT?

Answer 18

Taking the bid (lower) price plus a quarter of the difference between it and the offer price

Question 19

How are life policies treated for IHT if assigned to another?

Answer 19

• If an individual takes out a policy on their own life, pays some premiums, and then decides to give the policy to someone else by assignment or by declaration of trust, they make a PET.

The value transferred the greater of =

• the premiums or other consideration paid before the transfer of the policy, and
• the open market value of the policy at the date of transfer.

Question 20

What is the difference between a deed of variation and a disclaimer?

Answer 20

• a disclaimer effectively puts the inheritance back into the estate, meaning it will pass to the next eligible beneficiary
• a deed of variation can actually divert property to any person(s) nominated by the individual who inherited under the will.

Question 21

How is IHT treated for the creation of discretionary and IIP trusts?

Answer 21

a) This will be a chargeable lifetime transfer (CLT) with tax payable at 20% if it takes the settlor’s cumulative total over the NRB.

b) Some trusts may utilise the RNRB, but not all.

c) If the settlor dies within seven years, then the full 40% rate of IHT will be payable.

Question 22

What are periodic IHT charges for discretionary and IIP trusts?

Answer 22

• Periodic charges arise on every ten-year anniversary of the trust creation.
• They apply to the trust, not the settlor; and whether or not the settlor is alive.
• The charge is 30% of the current lifetime rate; in other words, it is 6% of the value of the trust fund (ie, 30% of 20%).

Question 23

What are the exit IHT charges for discretionary and IIP trusts?

Answer 23

• It is taxed at 30% of the effective rate from the start of the trust; or, if it is after ten years, the effective rate from the last periodic charge.

Question 24

How are bare trusts treated for IHT?

Answer 24

• The creation of a bare trust is a potentially exempt transfer (PET).
• The trust will only be taxable if the settlor dies within seven years.
• If the beneficiary dies, the trust will be included in their estate for IHT purposes.

Question 25

What are the intestacy rules?

Answer 25

Surviving spouse or civil partner entitled to:

• statutory legacy of £322,000, which is index linked
• personal chattels
• half of the residue absolutely.

Children entitled to remaining half of the residuary estate at 18