CGT

Question 1

Gain for CGT purposes

Answer 1

the increase in value of the asset from the date of acquisition to the date of disposal

Question 2

acquisition value

Answer 2

price paid for asset

Question 3

How is a capital gain calculated?

Answer 3

disposal value - acquisition value = gain

Question 4

CGT is charged on the disposal of

Answer 4

non-cash assets

Question 5

Effect on CGT if beneficiary varies their inheritance

Answer 5

under s.62, if a beneficiary wants to give away their inheritance and avoid a CGT charge, the gift is ‘written-back’ to the deceased’s date of death and treated as having been made by the deceased

Question 6

To make a variation, an original beneficiary is a minor or lacks capacity must obtain

Answer 6

the court’s consent

Question 7

Why is there no issue of additional CGT arising as a result of a variation?

Answer 7

because no CGT is payable in respect of the deceased’s death estate in the first place

Question 8

Max. number of times an asset can be varied

Answer 8

Once only - a second variation will not be effective for tax purposes

Question 9

Which gifts cannot be varied?

Answer 9

• Property in respect of which the deceased was a life tenant immediately before death. The trust deed will determine where those assets go
• If the deceased had made a GROB, this property cannot be varied post-death as the deceased was not the legal owner of these assets and, although they are subject to IHT, they do not form part of the distribution estate.

Question 10

If the original beneficiary makes a variation of property but continues to enjoy the property, have they made a GROB?

Answer 10

No because the effect of the writing-back provisions is to treat the arrangement as a disposition by the deceased, the original beneficiary is not the donor of the property and therefore cannot retain any benefit

Question 11

A disclaimer

Answer 11

similar to a variation, operates as a refusal to accept property to which a beneficiary is entitled

Question 12

Limitations of disclaimers

Answer 12

A beneficiary can only disclaim before acceptance;
A beneficiary can only disclaim the whole gift (not partial);
The original beneficiary cannot control who receives the assets they disclaim.

Question 13

Why are variations typically preferred to disclaimers?

Answer 13

significantly fewer practical limits

Question 14

When does a precatory trust arise?

Answer 14

where a gift is made to a beneficiary by will with a wish expressed as to how the beneficiary should pass on those assets to others

Question 15

Example of a provision creating a precatory trust

Answer 15

“I give my gold rings stored in the safe in my bedroom to my daughter with the hope that she distributes these according to the letter of wishes I have left with this will”

Question 16

Benefit of precatory trusts

Answer 16

Precatory trusts allow flexibility with regards to gifts of chattels as the testator may change their mind and update the letter of wishes without amending their will.

Question 17

For IHT purposes, the beneficiary of a gift under a precatory trust should make the distributions…

Answer 17

within 2 years of the testator’s death so they will be treated for IHT purposes as gifts made by the testator’s will and not the original beneficiary (otherwise they would be deemed to make a PET)

Question 18

CGT impact on precatory trusts

Answer 18

Treated as though the original beneficiary made the distribution so CGT does arise (but IHT doesn’t). However, transfer window is usually so slight that CGT does not significantly arise.

Question 19

CGT rates (25/26)

Answer 19

18% - basic rate
24% - higher rate
PRs always pay CGT at the 24% higher rate