Capital taxes

Capital gains tax (CGT)

The Annual Exempt Amount for 2013/14 has been increased to £10,900.

Inheritance tax (IHT)

The rate of IHT remains at 20% for lifetime transfers and at 40% for death estates (including transfers within seven years before death brought back into the estate for the purpose of calculating the tax due at death).

In Budget 2010 it was announced that the threshold below which estates are not liable for IHT, the nil-rate band, would be frozen at £325,000 until April 2015.

The Government announced on 11 February 2013 that the IHT nil-rate band would remain frozen until April 2018.

IHT – spouses and civil partners domiciled overseas

All individuals, irrespective of their domicile status, benefit from an IHT nil-rate band, currently £325,000. Transfers of assets between spouses and between civil partners, whether gifts made during a person's lifetime or transfers of assets occasioned by the death of one of the couple, are generally exempt from IHT.

But where the spouse or civil partner to whom the assets are transferred does not have a UK domicile there is a lifetime limit (cap) on the value of the assets that can be transferred free of IHT. The cap is currently £55,000.

Legislation will be introduced in Finance Bill 2013 to reform the IHT treatment of transfers between UK-domiciled individuals and their non-UK domiciled spouse or civil partners in two ways:

  • the cap will be increased to the level of the prevailing nil-rate band level, and
  • under a new election regime, individuals domiciled other than in the UK and who are married or in a civil partnership with a UK domiciled person will be able to elect to be treated as UK-domiciled for IHT purposes.

IHT – limiting the deduction for liabilities

Legislation will be introduced in Finance Bill 2013 to amend the IHT provisions which allow a deduction from the value of an estate for liabilities owed by the deceased on death. The changes are being introduced in response to avoidance schemes and arrangements which exploit the current rules that allow a deduction regardless of whether or not the liabilities are paid after death, or how the borrowed funds have been used. This only applies in certain circumstances.