Gifting Assets Into Trust To Plan Against Future CGT Increases
On 11th November 2020, The Office of Tax Simplification (OTS) published two proposals of recommendation to closely align the rates of CGT with income tax rates and also to reduce the annual CGT allowance.
Due to the current economic climate, there lies continued uncertainty in relation to the likely rises in CGT. However, there may be an opportunity to safeguard one’s asset from any future CGT changes if you were to gift assets into trusts.
Gifting assets into trusts before 6 April 2021
A donor who has gifted assets into a discretionary trust before 6 April 2021 will have until January 2022 to decided whether to let the CGT charge crystallise or hold over the gain to the trustees to pay CGT when they dispose of the asset.
The donor can review the position, also taking into consideration all the circumstances at the point the gain becomes reportable (i.e. in January 2022) rather than making a definitive decision now, in uncertain circumstances; this seems to be favourable as this sort of planning is valuable, particularly where CGT changes are anticipated.
Donors should be made aware that gifting into a trust may also come with other tax implications. A transfer of an asset from an individual into trust is a chargeable transfer for the purposes of inheritance tax (IHT) for the value above £325,000 per person, however, in some cases this can be mitigated if for example Business property relief is available. However, where you may wish to undertake some IHT planning anyway, this CGT planning may be an interesting additional consideration right now.
For those concerned about potential CGT rises this year, it is worth considering whether now might be the right time to consider making such gifts into trust. This is a good strategy in order to preserve a certain amount of flexibility and certainty when heading into this uncertain future.