Beware of the Capital Gains Tax - Gifts | MSF Associates

If you've been fortunate enough to receive a gift, be it money or a tangible item, you should be aware of the Capital Gains Tax (CGT). This tax is charged on any profits made from the sale of an asset, and can add up quickly for those who aren't careful. Here we'll take a closer look at what CGT is and how to avoid paying too much!


So, what is CGT?


CGT is a tax you may have to pay on the profit you make when you sell certain items. These include:

  • Personal possessions worth £6,000 or more,
  • Property that's not your main residence,
  • Shares that are not in an ISA or PEP, and business assets.


CGT is calculated by subtracting the cost of the item from the amount you received when you sold it. If you made a loss, you can usually get relief for it. The rate of CGT you pay depends on how much taxable profit you have and whether it's your main or second home. You usually don't pay CGT on gifts to charity or on most types of ISA and PEP. For more information on CGT, please get in touch with us.


Example


Brad has a really vintage piano which his cousin has always loved. Brad purchased this piano many years ago for £100. Due to the piano becoming a very collectible item its value is now £20,000.


On giving the gift to his cousin, Brad has technically disposed of the piano at the current market value of £20,000. So he has currently made a capital gain of £19,900. As a standard rate tax payer, assuming his annual exemption of £12,300 is still available he must pay a capital gains tax on a gain of £7,600. 


Giving a gift to your spouse


When gifting to a spouse it is deemed to be at a value which does not give a gain or a loss. If the piano was sold to Brads wife Jen instead of his cousin, Brad would have given the piano to her for £100 (the value which creates neither a gain or loss) and Jen would be treated to have acquired the piano for £100. In this situation there is no liability for capital gains tax on the gift.


Charitable giving to a charity


For any gift to a charity there is no capital gains tax on this.


Need support with tax?


MSF Associates are here to help with all your tax-related issues, both personal and company-related. We know how tricky it can be to understand the variety of tax implications, so we're here to help you make better-informed decisions and ensure you're being as tax-efficient as possible. Whether it's calculating the right amount of CGT or knowing when to pay off a directors loan account, our specialised staff are on hand to help you navigate the world of taxes. So why not give us a call today and see how we can help you?


If you require any assistance or are interested in our tax planning services, give us a call on 0113 240 4100 or contact us!