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Client Circular Introduction »
Capital taxes
CGT rates
The rates of CGT remain at 18% to the extent that any income tax basic rate band is available and 28% thereafter. The rate for disposals qualifying for Entrepreneurs’ Relief (ER) is 10% with a lifetime limit of £10m for each individual.
Comment
The ER limit is very generous and owners of businesses should ensure that they meet all the conditions necessary to secure the relief throughout the twelve months up to the date of a disposal.
CGT annual exemption
The CGT annual exemption has been frozen at £10,600 for 2012/13.
Foreign currency bank accounts
Bank accounts denominated in a currency other than sterling are chargeable assets for CGT. There is an exemption where the account is held by an individual and is used to meet personal expenditure abroad. This means that every withdrawal technically constitutes a disposal for CGT purposes and a gain or loss can arise by reference to movements of exchange rates.
It is now proposed that the exemption from CGT will apply to all foreign currency bank accounts held by individuals, trustees of settled property and personal representatives of deceased persons. This exemption will apply for all withdrawals made on or after 6 April 2012.
Inheritance tax (IHT) nil rate band
The IHT nil rate band remains frozen at £325,000 until 6 April 2015.
Reduced rate of IHT for the charitable
The Government will introduce a reduced rate of IHT for an estate where a minimum level of legacy has been left by the deceased to charity. The actual legacy to charity remains exempt from IHT and it is the rate of tax on the balance of the estate that would be reduced to 36% from 40%.
The reduced rate will apply where charitable bequests satisfy a 10% test. A comparison will be made between:
- the total value of charitable legacies for IHT purposes and
- the value of the net estate as reduced by:
- any available nil rate band
- the value of assets passing to the surviving spouse or civil partner and
- other IHT reliefs and exemptions for example Business Property Relief but excluding relief for the charitable donations.
If the first figure is at least 10% of the second then the balance of the estate will qualify for the reduced IHT rate of 36%.
Special rules apply if the estate includes either:
- property which is jointly owned which passes automatically on death to the other joint owner(s) under survivorship rules (in England Wales and Northern Ireland) or their local equivalent
- settled property which forms part of the estate because the deceased held a qualifying interest in possession in the assets.
The changes will apply to estates where the individual dies on or after 6 April 2012.
Comment
Because the benefit of the reduced IHT rate will be dependent on whether or not the amount of the charitable legacy is sufficient for the estate to pass the 10% test, there will be a ‘cliff edge’ effect.
Where the amount of the charitable legacy is close to the critical 10% point, a small difference to the amount of the legacy could have a much larger impact on the estate’s IHT liability. There are no plans to apply any taper or other mechanism to mitigate this.
IHT – other matters
The Government will consult on two areas for inclusion in Finance Bill 2013:
- simplifying the calculation of IHT ten year charges and exit charges for trusts
- increasing the IHT exempt amount that a UK domiciled individual can transfer to their non UK domiciled spouse or civil partner.
Client Circular Introduction »
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