Tax-free gains on gifts to spouse or charity

In most cases, there is no Capital Gains Tax (CGT) to be paid on the transfer of assets to a spouse or civil partner. There is, however, still a disposal that has taken place for CGT purposes effectively at no gain or loss on the date of the transfer. When the asset ultimately comes to be sold, the gain or loss will be calculated based on the original cost when the asset was first owned by the spouse or civil partner.

There are a few exceptions that couples should be aware of when the relief does not apply. This relates to the use of goods which are sold on by the transferee’s business and for couples that were separated and not living together for the entire tax year when the assets were transferred. Spouses or civil partners that lived together at any point in the tax year when the assets were transferred can still benefit from these rules. If a transfer did not qualify then the asset must be retrospectively valued at the date of the transfer and the transferor is liable for any gain or loss.

There are similar rules for assets that are gifted to charities. However, CGT may be due where an asset is sold to a charity for more than was paid for it and less than the market value. The gain in this case would be calculated based on what the charity paid rather than the market value of the asset.

SEISS – more red tape

Government support to the self-employed through the Self-Employment Income Support Scheme (SEISS) is due to end on 30 September 2021. A fifth and final grant covering the period May 2021 to September 2021 will be opened to claims from late July for those who have suffered a significant reduction in trading profits. To qualify for the grant, average trading profits must be £50,000 or less and non-trading income cannot exceed 50% of total income.

The grant will see those whose turnover has fallen by 30% or more continuing to receive the full 80% grant (capped at £7,500) whilst those whose turnover has fallen by less than 30% will receive a 30% grant (capped at £2,850). This is a change from the previous SEISS grants where there was only one grant available to qualifying applicants.

HMRC is in the process of contacting eligible taxpayers to notify them of their personal claim date. Taxpayers will be able to make claims from this date up until the claims service closes on 30 September 2021.

Most taxpayers claiming the fifth SEISS grant will be required to provide turnover figures to make a claim. The turnover figures will be used to compare the 'pandemic year' with a 'reference period'.

Newly self-employed people, who had previously been excluded from claims because they commenced their trade during the 2019-20 tax year, are eligible to claim the fifth SEISS grants if their tax return for 2019-20 was filed by midnight 2 March 2021. They must also have traded or intended to trade in 2020-21 and intend to continue doing so.

HMRC is also warning taxpayers to be on the lookout for SEISS-related scams and to only respond to correspondence that is verified to be legitimate.

Who pays Inheritance Tax?

Inheritance Tax (IHT) is commonly collected on a person’s estate when they die but can also be payable during a person’s lifetime on certain trusts and gifts. The rate of IHT currently payable is 40% on death and 20% on lifetime gifts.  IHT is payable at a reduced rate on some assets if 10% or more of the 'net value' of their estate is left to charities.

Funds from the estate of the deceased are usually applied to pay IHT. If there is a will, it is usually the executor who deals with paying any IHT due to HMRC. IHT can be paid from funds within the estate, or from money raised from the sale of the assets. The deceased may also have used a life insurance policy to fund the payment of some / all the IHT due.

There is a nil-rate band, currently £325,000 below which no IHT is payable. In addition, there is an IHT residence nil-rate band (RNRB) which relates to a main residence passed down to a direct descendent such as children or grandchildren. The RNRB of £175,000 (where available) is on top of the £325,000 IHT nil-rate band.

The recipient of gifts from the deceased may be personally liable to IHT if the deceased gave away more than £325,000 in the 7 years before their death. These lifetime transfers are known as 'potentially exempt transfers' or 'PETs'. The rate of IHT gradually reduces over the 7-year period becoming exempt from IHT after 7 years have passed.

Some gifts will typically be tax-free from the time they are made such as regular gifts made from excess income, the first £3,000 worth of gifts each tax year and gifts between spouses and civil partners.

Who counts as CIS contractor or sub-contractor?

The Construction Industry Scheme (CIS) is a set of special rules that affect tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and will need to be aware of the tax implications of the scheme.

Under the CIS, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance liabilities.

Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction a year in the 12 months since they made their first payment.

Subcontractors do not have to register for the CIS, but contractors must deduct 30% from their payments to unregistered subcontractors. The alternative is to register as a CIS subcontractor where a 20% deduction is taken or to apply for gross payment status when the contractor will not make any deductions and the subcontractor is responsible to pay all their tax and National Insurance at the end of the tax year.

The CIS covers most construction work carried out in the UK, including jobs such as:

  • site preparation
  • alterations
  • dismantling
  • construction
  • repairs
  • decorating
  • demolition

Exceptions to the definition of construction work includes professional work done by architects and surveyors, carpet fitting, scaffolding hire (with no labour) and work on construction sites that’s clearly not construction. The CIS does not apply to construction work carried on outside the UK.

Tax Diary August/September 2021

1 August 2021 – Due date for Corporation Tax due for the year ended 31 October 2020.

19 August 2021 – PAYE and NIC deductions due for month ended 5 August 2021. (If you pay your tax electronically the due date is 22 August 2021)

19 August 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2021. 

19 August 2021 – CIS tax deducted for the month ended 5 August 2021 is payable by today.

1 September 2021 – Due date for Corporation Tax due for the year ended 30 November 2020.

19 September 2021 – PAYE and NIC deductions due for month ended 5 September 2021. (If you pay your tax electronically the due date is 22 September 2021)

19 September 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2021. 

19 September 2021 – CIS tax deducted for the month ended 5 September 2021 is payable by today.