• Remaining on the theme of property, clients could consider incorporating let properties into a company, consider using the rent-a-room relief, which has, from 6 April 2016, been increased from £4,250 to £7,500 per year, or look at the very generous furnished holiday lettings rules, which can, in the right circumstances, provide income, capital gains tax (CGT) and IHT benefits.
Capital Gains Tax
Although the 2016 Budget saw a reduction in CGT rates for most disposals, property being the most notable exception, there was also no change to the annual CGT exemption remaining at £11,100. As a result, CGT is still worthy of an adviser’s attention.
When planning for CGT, consider the following:
• Unlike many exemptions, the CGT exemption cannot be carried forward: it is simply a case of use it or lose it. While the concept of bed-and-breakfasting (the sale and repurchase of an asset in order to crystallise a gain) is ineffective for tax purposes carried out within 30 days, the technique is nevertheless still a viable option, either outside the 30 days or where the client does not wish to take the risk of being disinvested, where the sale is made by one spouse/civil partner and the repurchase by the other, via an Isa or even in the right circumstances via a pension. Married couples and civil partners can transfer assets between them on a no gain/no loss basis, provided such transfers are made outright and without preconditions. Such action can have several beneficial impacts, including the use of the recipient’s annual exemption, the use of previous capital losses and, if a liability is going to arise, achieving at a lower tax rate, that is, 10 per cent instead of 20 per cent or 18 per cent instead of 28 per cent.
• Where a CGT liability has arisen or will arise, the ability to defer any liability or potentially reclaim any tax paid is possible via an investment into an EIS or a Seed EIS (SEIS). The reinvestment must be made within a period starting one year before or ending three years after the original disposal. The original gain itself is deferred until the EIS shares are sold, at which point it comes back into play, but can be deferred again via further EIS qualifying investments – capacity permitting.
