CGT savings transfer between spouses
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.
Comment on the suitability or otherwise of investing some of the proceeds of the business into (EIS) & (VCT) to minimise IT and IHT.
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.
Holdover Relief (Father son example)
- 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
