Wondering how to avoid capital gains tax on gifts? Read this quick post to learn how you can eliminate or reduce your CGT on gifts. Remember that every gift you make is not exempt from CGT. There are some complex rules regarding which you don’t need to pay capital gains tax. In today’s post, we’d be exploring what is CGT, when you need and needn’t to pay CGT, and how to avoid capital gains tax on gifts. Read on to learn all in this quick guide.
What is Capital Gains Tax?
CGT or capital gains tax is the tax you pay when there’s a capital gain on any asset you sell or dispose of. This tax is not charged on the total amount of sale, rather it is only taxed on the chargeable gains you made. The chargeable gain is the increase in price between the price you paid for the asset and the price on which you sold it. It is the responsibility of the owner of the asset who makes the sale.
This tax is payable on the chargeable gain under all the below conditions:
- when you sell an asset
- when you gift it
- at the time of exchange
- when you got compensation or insurance for it
When Do You Need to Pay CGT?
You need to pay it when you dispose of:
- a property other than your main home/resident
- any personal possessions worth over £6,000 or more, apart from your car
- business assets
- share that is not in PEP or ISA
- your main residence, if you’ve rented or used it for business purposes
All the assets and possessions mentioned here are considered chargeable assets for the purpose of CGT.
Find out CGT rates here!
When CGT is not Payable?
Capital gains tax is not levied on the chargeable gains made on those assets that are above the tax-free allowance (£12,300. £6,150 for trusts). Additionally, if you are disposing of something as a gift to your spouse, civil partner or charity, you are fully exempt from CGT.
How to Avoid Capital Gains Tax on Gifts?
Here are the quick tips through which you can avoid capital gains tax on gifts:
- Transfer your assets to spouse or civil partner
- Avail CGT allowance of £12,300 (2021-22)
- Offset against losses over gains
- Use your annual ISA allowance
- Spread gains over tax years
- Gives shares to charity
- Contribute to a pension
- Reduce your taxable income
- Invest in small companies
Gifts Made to Charity
If you are disposing of gifts to charity, you are not required to pay CGT. However, you may need to pay it in the following circumstances where you dispose of assets to charity:
- below the market value
- more than you paid for it
CGT on Gifts to Your Spouse
Gifts to a spouse, civil partner are exempt from CGT, unless:
- you gave them goods for their business to sell on
- you have separated or divorced and did not live together in that tax year
However, upon further disposing of the asset, CGT is payable.
That is all about how to avoid capital gains tax on gifts. By following the tips mentioned above, you can cut off or eliminate a considerable amount of CGT and can save more in taxes. If you are suffering from a complex tax issue, you can get help from our tax experts and accountants to optimise your taxes.
Disclaimer: This blog is written for general information on the topic.