Following the Budget increase in capital gains tax (CGT), from 18 per cent to 28 per cent for higher-rate taxpayers, can I use my £10,100 annual exemption to reduce my higher-taxed, post-June gains – rather than the gains I crystalised earlier in the tax year at 18 per cent? Similarly, can I offset carried-forward losses against higher-taxed post-Budget gains, to save the most tax?
Tim Norkett, national head of private clients at Horwath Clark Whitehill, the accountants, confirms that the new higher rate of capital gains tax (CGT) of 28 per cent applies to gains on assets sold on or after June 23 2010 by higher-rate taxpayers – ie people whose income in this tax year and whose capital gains arising on or after June 23 total more than £43,875.
It is unusual for a new tax rate to be introduced part-way through a tax year. However, as HM Revenue & Customs’ Budget Note 20 states, the £10,100 annual exemption, and losses carried forward from earlier tax years or prior to June 23, can be allocated against gains realised after the Budget to reduce those taxable at 28 per cent.
For example, if a higher-rate taxpayer with £10,000 of losses had realised gains of £20,000 before the Budget and a further £30,000 after the Budget, both the £10,100 annual exemption and carried-forward losses would be deducted from the £30,000 post-Budget gain, leaving £9,900 taxable at 28 per cent. The other £20,000 of pre-Budget gains would be taxed at the previous 18 per cent flat-rate of CGT.
This flexibility also means that, where a higher-rate taxpayer has losses from before the Budget, it might be worth selling further assets to generate post-Budget gains against which the losses can be offset – so achieving tax relief for these losses at 28 per cent rather than 18 per cent.
Individuals with non-taxpaying spouses or civil partners should also consider transferring assets to their partners before sale, so that CGT is payable at 18 per cent on the first £37,400 (the partner’s basic rate band) of taxable gains.
Tax liability on inherited chalet?
My Swiss aunt died recently, leaving me a chalet. It has been valued at the Swiss “fiscal value”, and inheritance tax has been paid. When I sell it, there will also be capital gains tax (CGT) at 7 per cent in Switzerland on the difference between the fiscal value and the realised value. But when I receive the net proceeds, will I be liable to further tax in the UK?
Matthew Woods, partner at solicitors Withers, says that there will be extra capital gains tax to pay in the UK.
Inheritance tax has been agreed and paid in Switzerland on the “fiscal value”. This value is likely to be less than the market value. When the chalet is sold, the amount above the fiscal value will be subject to Swiss CGT at a rate of 7 per cent.
As the chalet has been left to you under Swiss law, you will automatically gain title and, for tax purposes, should therefore be treated as the seller of the chalet. Assuming you are resident in the UK, you will be liable to CGT in the UK at 18 or 28 per cent on the amount above the fiscal value, depending on your income tax band.
But you will get credit in the UK for CGT paid in Switzerland and so the overall tax will not be more than a combined 28 per cent. However, if the executors are the sellers, HMRC might not allow this as a valid credit against your CGT liability.
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