My wife and I own the property that we bought for my son when he was a student. He has lived there rent-free ever since and he has married and now has a family. As a way to minimise our inheritance tax liabilities we would like to gift half ownership to our son and the other half to our daughter who does not live in the house. We are aware of the capital gains tax implications for our daughter if our son were to sell the house but is there any capital gains tax liability for us, or the children, when we make the gift?
Anne Redston of the Chartered Institute of Taxation says that if you and your wife gift the house to your children and then survive for seven years there will be no IHT implications as long as you don’t live there. But you are right in thinking the gift will be subject to capital gains tax. “It used to be possible to defer any tax arising but this is no longer the case,” Redston says. “You will need to review whether paying CGT will be less expensive for you than IHT.”
The capital gain will be based on the market value at the time of transfer. It can be split between you and your wife (meaning you can both make use of the annual £8,800 capital gains allowance) and the costs of any improvements you have made can also be deducted.
Once the property is transferred, your children will receive it at the market value used for your CGT calculation. This means that if your daughter sells her share within a short period, it is unlikely she will have any tax to pay, as any further gain will probably be sheltered by her annual allowance. Assuming the property remains your son’s main residence, no CGT will be chargeable on his half share when he sells it. One risk area is that if at some future point you and/or your wife move in with your son, there could be an income tax charge on you under the pre-owned assets rules. This may be the case even if your son has moved house.
Some years ago, while working in the NHS, I made a contribution to a Royal National Pension Fund for Nurses which offered a guaranteed annuity at age 65. I receive annual “illustrations” informing me what I might get at 65 but these bear no resemblance to either the guaranteed cash fund or the annuity, and also do not take into account the extra benefit I will receive from the purchase of RNPFN by Liverpool Victoria. When I asked what this paperwork meant I was told these guarantees are not taken into account when doing estimates, and I will be given details of my annuity at retirement. I am not dependent on this annuity but lots of NHS staff are. Why send out these statements if they are meaningless?
Liverpool Victoria, the UK’s largest friendly society, bought the RNPFN pension fund in 2001 and has been managing it ever since.
Katherine Hart at Liverpool Victoria says the annual illustration is something that the society is legally required to send out each year. She says it can send more accurate projections only within 12 months of the date a customer will draw an income.
She points out that the illustration itself states: “This illustration is required by law and is designed to help people plan for their retirement. The amount of pension is shown in today’s prices and has been worked out in accordance with assumptions laid down in the Occupational and Personal Pension Schemes (Disclosure of Information) Amendment Regulations 2002 (SI2002/1383) and the Faculty and Institute of Actuaries Technical Memorandum 1. The illustration is not a promise or guarantee of the actual amount of pension you will receive when you retire.”
I hope you don’t mind returning to the subject of gold coins. Are the gains on Krugerrands still subject to capital gains tax if they exceed your allowance for any tax year? Also, do they have to be declared irrespective of the amount purchased when they are acquired in the same way as assets such as stocks and shares?
South African Krugerrands were the first gold bullion coins to be marketed as an investment product. As they traded at only a small premium above gold they instantly proved popular worldwide.
Daniel Vowles, numismatic assessor at Chard, a Blackpool-based gold trader (www.taxfreegold.co.uk), says there is often confusion about whether profits made from gold are taxable or not. Unfortunately for investors, profits made from selling Krugerrands do come under capital gains tax legislation and profit in excess of ££8,800 in the tax year 2006/07 will be taxed based on your income.
“Within the gold bullion trade many people seem unsure as to the correct tax laws and legislations” says Vowles. “This is in part due to the inadequacy and poor organisation of HM Customs & Excise website.” HMRC’s CGT manual, on the other hand, states clearly that: “Coins which are currency but not sterling, for example Krugerrands, are chargeable assets.” “This means they are subject to CGT,” Vowles says.
He also notes the manual says something that may please investors in British Sovereigns and Britannias in relation to CGT. “Sovereigns minted in 1837 and later years and Britannia gold coins are currency but, like all sterling currency, are exempt.” This means they are not chargeable assets and will not attract CGT.
On the second point, about declaring assets, he says that as a buyer of Krugerrands you are not required to declare your acquisition but you will have to provide personal details to the vendor. This is because it is the seller’s responsibility to notify HM Revenue & Customs of individuals buying investment gold.
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