Tax Tip Tuesday! Can I gift to my children tax efficiently during my lifetime to mitigate inheritance tax?
"I want to gift property to my children now rather than waiting till my death. How will this affect my tax position, especially considering there are planned changes coming in April to capital gains tax?"
Good question! There is much anticipation of tax changes coming up in the UK Budget on 11 March, and the expected changes in capital gains is one of them.To be clear, in tax terms, a gift to a child is a gift to a 'connected' person and is considered a disposal and the value of the gift is based on current market value for tax purposes.
The major change that is planned for capital gains tax (CGT) from April this year is that when a disposal is made, such as a UK property in this instance, and the disposal is made by UK residents, which I will presume in this case you are, you will need to report this disposal or gift within 30 days of gifting completion date and also pay any capital gains tax due.
This is in contrast to current tax rules whereby after a disposal you are required to report and pay at the next self assessment tax return deadline of 31 January after the end of the tax year of gift. These planned changes will have a huge impact on cash flow for those affected as well arranging for the 30 day return to be completed on time.
To help with cash flow, you do have the option to pay any CGT due in ten annual instalments, with the first payment due on the normal due date of 30 days after disposal.The assets on which relief is available are as follows:
land, or an estate or interest in land;
a controlling shareholding of a company’s shares or securities; or
shares or securities not comprising a controlling interest, but which are not listed on a recognised stock exchange. Shares traded on the Alternative Investment Market (AIM) do not fall under this definition
The instalments include interest which runs from the normal due date and is compounded on the unpaid portion of the tax. The taxpayer can pay off any part of the outstanding balance at any time.
There are exceptions to the new CGT reporting and payment changes, for example for main residences covered by Principal Private Residence Relief, or PPR, available to taxpayers selling or disposing of their main residence or home and therefore have no CGT to pay.
If you think you will be affected by the upcoming changes to CGT or you would like to review your tax position before April 2020 when a raft of tax changes are expected, please get in touch to see how Mirandus can help.
