Capital Gains & Inheritance Tax planning is the focus of part 3 of our Year-End Planning Series and covers claiming tax relief for capital losses, annual exemption, residence relief and inheritance tax planning.
Claiming tax relief for capital losses
Capital losses must be claimed within four years of the year-end which the loss is realised. This means that capital losses realised in the tax year 2013/14 must be claimed by 5 April 2018. This would generally be done as part of your tax return, but it is important to consider whether or not you may have losses to claim which have not been claimed previously. This is particularly relevant to non-UK domiciled individuals.
The conditions to claim a loss and the claim itself can be complicated and so we would advise discussing this with your usual Tax consultant contact.
Use your CGT annual exemption
Each individual has an annual exemption of £11,300 (for 2017/18). If you do not use your annual exemption it cannot be carried forward and is lost. Consideration could be given to selling assets to realise gains if this is consistent with the overall investment strategy. However, anti-avoidance rules mean that if shares and securities are sold and repurchased within the following 30 days, the disposal will be matched with the later acquisition when the gain is calculated.
Main residence relief
Where a property is used as the owner’s only or main residence throughout the ownership period, any gain on disposal is exempt from CGT. Married couples and civil partners can only have one main residence between them. If more than one property is used as a residence by an individual or couple, it is possible to elect which one should be treated as the main residence for CGT purposes.
Using current year exemptions and allowances
Individuals are entitled to exemptions and allowances each tax year. These include the following;
- Inheritance Tax (IHT) annual exemption of £3,000 per annum
- Stakeholder pensions of £3,600 per annum (gross)
- Individual Savings Accounts (ISAs) £20,000 per annum
- Junior ISAs – available to children under the age of 18, UK resident with no child trust fund £4,128 per annum
Inheritance Tax (IHT)
In general, 40% IHT is payable on the value of the estate on death, subject to any exemptions available. Lifetime planning can also reduce the overall IHT suffered. It is important to ensure that gifts are made as part of a normal pattern of expenditure and that the donor retains sufficient income to maintain his or her normal standard of living after the gift. It is recommended that the intention to make regular gifts out of income is documented from the outset of the arrangements and that appropriate records are maintained.
At RB we work with our clients throughout the financial year to achieve the best outcome but if any of the above resonates with you please contact us.
Released next week will be the final part of the series focusing on Tax Administration.
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