A gift to your family and friends may benefit them but reduce the value of the estate for inheritance tax purposes. As such a gift is the outright transfer of an asset for little or no cash or other consideration. When a gift is made, it is treated as making of disposal for tax purposes. Disposing of an asset includes the selling, transfer, gifting, swapping of an asset, or receiving compensation against the asset, such as insurance pay out.
If a business asset is transferred or in some cases shared to the buyer at less than present value to help him/her, Gift holdover relief can be claimed. Essentially gift holdover relief means the liability of capital gains tax on gift transfers is not on the transferor but on the person who is receiving the gift when he/she disposes of the asset. Gift holdover relief is a joint claim made together with the person the gift is given to.
The general rule for CGT is that gifts are treated for tax as being made as market value. When an individual or trustees of a settlement make a gift of a capital asset to another person holdover relief is available. The effect of holdover relief is that the donor does not pay any tax on disposing of the asset, which instead passes on to the donee, which is deducted from their base cost. Special reliefs are available when a gift is made, otherwise, if not considered properly such gains may be subject to capital gains tax.
As the disposal proceeds are the market value of the asset at the time of the gift the cost of acquiring and enhancing the asset can be deducted from the sale proceeds.
Capital Gains Tax does not apply to assets that are given to charity, or on transfers of assets between spouses or civil partners. This is because no gain or loss is deemed to take place. CGT would only apply if the couple is separated and not living together in that tax year, or when the asset is later sold. No CGT is required to be paid on any gains in a tax year that are within the CGT free allowance limit of £12,300 or £6,150 for trusts.
The condition for claiming any relief depends on whether business assets or shares are given away. If so sole traders or business partners having at least 5% of voting rights in the company or use of the assets in the business or personal company can be entitled to the CGT relief. Partial relief is available if the assets are used only partly for the business.
If shares are given away, they must be in a company that’s either a personal company or not listed on any recognised stock exchange. The company’s main activities must be in trading, for example providing goods or services, rather than non-trading activities like an investment.
Any investment in cryptocurrencies that results in big gains will be taxed on the related profits Crypto is not treated as money meaning they would be taxed on the gains from crypto assets in the same way as CGT is applied to the profits generated from selling shares.
CGT doesn’t apply to the paper (unrealised) gains of crypto, rather when they are traded for another cryptocurrency, or converted into pounds sterling at which point the gains are realised. As with other assets, the annual CGT allowance is applied, and the profits are calculated based on the difference between the cost of the cryptocurrency versus how much they were sold for.
The 30-day rule restriction preventing people from using their CGT allowance each year by selling shares and then buying them back the next day to potentially minimise CGT exposure needs to be kept in mind. Failure to adhere to the matching rules may apply which in effect stop the cost base from being reset. Cryptocurrencies can be traded often which then makes it difficult to work out the CGT liability.
Cryptocurrency also forms part of the estate as an asset. This means it’s also potentially subject to inheritance tax should it be passed down to beneficiaries in the event of death.
Care Accountancy can help you in determining the tax liability arising out of capital gains, considering the complexity of the holdover relief, and applying the rules with accuracy. The application of Capital gain tax may not be as simple as it seems.