Tax & Accounting News

Children’s Tax Planning is a Capital Idea

13/03/2009

With the end of the tax year on 5 April fast approaching, there is still time to take advantage of the individual capital gains tax exemption to reduce your tax bills.

Each of us is eligible for the exemption, which stands at £9,600 in 2008-09 and if you have children, even if they are aged under 18, their exemption can help you to save on capital gains tax, which is payable at 18 per cent on gains above £9,600.

For example, assume that you bought a property in 2000 for £100,000 that is now worth £200,000. You want to hold on to the property as you expect its value to rise further in the future, although that increase will be liable to extra capital gains tax.

If you have two children, giving a one-tenth share of the property to one child in March 2009 and the other after April 5 2009 will be treated by HM Revenue & Customs as sales at market value, each resulting in a capital gain of just over £9,600. With the gifts falling into two tax years, two annual exemptions apply, so you will have minimal capital gains tax to pay.

When you sell the property at a future date, you and your two children will each be able to claim a capital gains tax exemption for that year, reducing the gain liable to tax.

If you make capital losses in the same year as a capital gain, the losses are offset against the gains. If the loss is greater than the gain, you can carry forward the loss to set against gains in future tax years.

You can transfer the loss-making asset to your child but these can only be used against capital gains for the same child in future tax years, without time limit.

Remember that if you do decide to transfer assets to your children, it is sensible to talk to a solicitor about drawing up a deed of gift as evidence.

If you would like advice on any aspect of capital gains tax, please contact us.

 

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