Would you please explain capital gains tax? Does it only apply when you sell an investment property? How much do you pay? Are there any circumstances in which you don't have to pay it?
Capital gains tax (CGT) is payable when you sell investment assets, but it is not triggered until the asset is disposed of. Also, an important point is that it is the date of the contract, not the settlement date, that is the relevant disposal date for CGT purposes. If you have owned the asset for more than a year, you are entitled to a 50 per cent discount, which halves the CGT that may be payable. There is no specific rate of capital gains tax - the assessable gain is added to your taxable income in the year of sale. Death does not trigger CGT, it merely transfers the liability to the beneficiaries.
I am an executor of a deceased estate, in which there are a number of equal residuary beneficiaries and a large share portfolio with a potentially high capital gains tax (CGT) liability. What are the advantages and disadvantages to the estate of distributing the shares in specie or of selling the shares and distributing the proceeds? Each of the beneficiaries will be advised to seek professional advice about their own situations.
There is no simple answer because your best strategy depends on the financial position of each of the beneficiaries. For the first three financial years after death, the estate is taxed the same as an individual with the usual personal-tax thresholds. If the shares are sold in that time, the estate will pay CGT, but if the shares are transferred in specie to the beneficiaries, the CGT liability will be deferred until the beneficiaries dispose of them. Therefore, you will need to have a meeting of the beneficiaries and your accountant and decide who wishes to retain the shares and who intends to dispose of them. It will then be a matter of which strategy saves the most tax - cash them in now and have the estate pay the tax or transfer them and let the individual beneficiaries pay the tax. A major benefit of shares is that they can be sold in part so the transactions can be tailored to each beneficiary's individual situation. Property does not have this unique benefit.
I recently moved and have now leased the original house. I realise the house loses its status as my principal place of residence if it continues to be leased for more than six years, and that this would expose me to capital gains tax if the property was sold. Could you please advise whether the six-year period would start afresh if I ended the lease for three months and left the house vacant, then began a new lease? My objective is to retain the status of the property as my principal place of residence and safeguard against capital gains tax.
The purpose of the six-year exemption rule is to allow a person to be absent from their house and then return to it. You cannot revive the six-year rule by simply renting it out again - you would need to physically return to it and live in it, even for a short time. That would restart the six-year exemption period.
Noel Whittaker is the author of Making Money Made Simple and other books. His advice is general and readers should seek their own professional advice before making decisions. email@example.com.