Unfortunately, gifts still count as disposals at market
value for CGT purposes so, unless a relief (such as private residence relief)
applies, gifts can trigger CGT and the giver may need to find extra, liquid funds,
above and beyond the gift itself, to pay the resulting CGT bill.
Of course, gifts of cash and exempt assets such as some chattels avoid any CGT problems. And gifts involving business assets and gifts to trusts can often put off the CGT charge for another day (or potentially forever) if the giver elects to hold over the gain. If none of these apply though, what then? Here are some ideas for generous parents wanting to manage the CGT consequences of gifts to their children:
· Spouses and civil partners who are ‘living
together’ are in the happy position of being able to swap virtually all types
of assets without triggering CGT. Find
the spouse/partner who has the most CGT annual exempt amount available (£11,000
in the current tax year), or the most capital losses to use up, and get them to
make the gift.
· The annual exempt amount renews itself every
year, of course. Accordingly, consider
the feasibility of spreading the gift over a number of tax years. For example, spouses might be able to give
away slices of the equity in jointly owned assets over a number of tax years
and, as long as the gain crystallised on the slice given away each year does
not exceed twice the annual exempt amount (currently £22,000), there will be no
CGT to pay.
· For gifts of land and certain gifts of unquoted
shares, it is possible to elect for the CGT to be paid by equal instalments
over a period of ten years (although interest is due on the unpaid tax). Any outstanding instalments and interest are
immediately payable if the subject of the gift is subsequently disposed of for
value, if the gift was made to a family member.
This option may aid cash flow and instalments could be paid by someone
else (the grateful recipient of the gift, maybe?).
· If the problem is that the giver lacks liquid
funds to pay the CGT, consider disposing by way of a sale to the family member,
rather than by way of gift. The consideration
given need not be at the full market value.
It could be set at an amount equivalent to the CGT that needs to be paid
as a result of the sale. For CGT
purposes, sales to connected persons, such as family members, are always
calculated on the basis of market value but the sale at an undervalue allows
the recipient child to get money for the CGT bill into the hands of the parent,
without making a gift themselves for IHT purposes.
