Q. My wife and I own various assets – some are held in individual names and others are held jointly. We are wondering whether we should ‘equalise’ the value of our assets so as reduce potential liability to capital gains tax at a future date.
A. As a general rule, so-called ‘equalisation of estates’ is often desirable for both capital gains and inheritance tax purposes. Broadly, this means that ideally each spouse/civil partner should own assets:
– amounting to at least the value of the inheritance tax (IHT) nil rate band (currently £325,000);
– which, on sale, enables full use of the capital gains tax (CGT) annual exempt amount (£12,000 for 2019/20); and
– generating income sufficient to mitigate any exposure to higher rate income tax.
Although inter-spouse/civil partner transfers are not technically exempt from CGT the mechanics of computation are such that no CGT charge arises on such transfers. This treatment requires the spouses/civil partners to be married and living together. The spouse or civil partner receiving the asset may have to pay tax on any gain if they later dispose of the asset. Their gain or loss may be calculated from the date the asset was acquired by the original spouse/civil partner.
Transfers between spouses must be ‘real’ transfers and effected as if to a third party. This means all relevant documentation must be correctly completed.
Q. I run my own business, which is registered for VAT. If I purchase a new car for business use, can I reclaim the VAT I pay on it?
A. If you only use the car for business purposes, you may be able to reclaim all the VAT paid on the purchase price. However, the car must not be available for private use, and you must be able to show HMRC that this is the case.
‘Private use’ includes travelling between home and work, unless it’s a temporary place of work.
You may also be able to claim all the VAT on a new car if it’s mainly used:
– as a taxi
– for driving instruction
– for self-drive hire
If you lease a car, you can usually claim 50% of the VAT. You may be able to reclaim all the VAT if the car is used only for business and is not available for private use, or is mainly used as a taxi or for driving instruction.
You can usually reclaim the VAT for buying a commercial vehicle (like a van, lorry or tractor) if you only use it for business.
Q. I bought a property several years ago to rent out. Over the last five years its value has risen from £120,000 to £220,000. I understand that if I sell it now, I would be liable to pay capital gains tax on a gain of £100,000. If I sell this property and re-invest the proceeds in another buy-to-let property would this mean I could delay paying the tax now?
A. Unfortunately not. Your plan to buy another house and thereby reduce the CGT payable on the first house is not allowed. ‘Rollover’ or ‘holdover’ relief from CGT is not available for investment properties, except for furnished holiday lettings, or compulsory purchase.