CGT UPLIFT ON DEATH

CGT UPLIFT ON DEATH | CHANGES TO CGT PRIVATE RESIDENCE & LETTING RELIEF

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NO TAX FREE CGT UPLIFT ON DEATH

The Office for Tax Simplification were tasked with simplifying inheritance tax. They also considered the interaction with Capital Gains Tax as many asset transfers potentially have both CGT and IHT implications. Currently there is no CGT on assets transferred on death and the recipient inherits the asset at its market value. This is what is meant by the CGT uplift on death.

It has been suggested that the CGT uplift on death distorts decision making relating to assets that benefit from an exemption from IHT. Individuals holding such an asset that has risen in value are often advised to retain it until death. This is because holding on to it, rather than giving it away during lifetime, has tax benefits.

Where a business is retained until death, any potential capital gains are wiped out and there is no Inheritance Tax to pay. This could lead to an asset being retained over transferal to the next generation at the time that is right for the business.

We’ll monitor the progress of this proposed change as it may have significant implications on family business succession planning.

 

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CGT PRIVATE RESIDENCE RELIEF CHANGES

Draft legislation to be included in the next Finance Bill will make important changes to the calculation of CGT private residence relief. As announced in the Autumn 2018 Budget, there will be a reduction in the final period exemption.

Currently, the last 18 months of the taxpayers main residence counts as a period of deemed occupation. This will be reduced to just 9 months for disposals on or after 6 April 2020. The introduction is to counteract “second home flipping” allegedly used by MPs when they sell their London residences. There will also be stricter conditions for letting relief to apply. 

 

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CGT LETTING RELIEF RESTRICTION

Currently letting relief provides up to a £40,000 deduction. This is when computing the capital gain on the disposal of a property that was at some time the taxpayer’s main residence. The relief is the lessor of £40,000, the gain attributable to the let period, and the amount of private residence relief. For a couple this could potentially exempt up to £80,000 of the gain from CGT.

The draft legislation will limit letting relief to those situations where the owner remains in shared occupancy with the tenant. Where a lodger is living in the house would be an example.

You may be hoping to take advantage of letting relief on the sale of a property. You might want to consider disposing of the property before 6 April 2020 to take advantage of the current rules.

Contact us for advice in this area as we can estimate the additional tax that might be due following the withdrawal of this generous relief.

 

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