Capital Gains and Inheritance Taxes

Understand how a change in income through capital gains or inheritance affects tax status...

Capital Gains Tax

Individuals who are resident and ordinarily resident in the UK are liable to capital gains tax on:

  • Worldwide gains – if domiciled in the UK, or non domiciled and subject to tax on the arising basis;
  • Gains on UK situate assets, and gains on foreign assets only if remitted to the UK – if domiciled outside of the UK and they elect for the remittance basis to apply.

For the 2013/14 tax year, basic rate taxpayers are subject to tax on capital gains at 18% and higher rate taxpayers at a rate of 28%.

UK Personal Allowance/Capital Gains Tax (CGT) Exemption

Generally, individuals who are resident in the UK are entitled to an annual personal allowance (£9,440 for 2013/14) and a CGT exemption (£10,600 for 2013/14). This means that an individual can receive £9,440 of income and £10,600 of capital gains, tax free.

However, individuals who are resident in the UK but non-UK domiciled, and elect for the remittance basis to apply are not entitled to the personal allowance or the capital gains tax exemption.

UK Inheritance Tax (IHT)

The UK does not impose wealth tax. However individuals may be subject to IHT if they own any assets located in the UK, irrespective of their residence or domicile.

A person’s IHT exposure depends on their domicile rather than residence position. Accordingly, UK domiciled individuals are subject to IHT on their worldwide assets, wherever they are situated.

A person who is non-UK domiciled (and not deemed domiciled), is only subject to UK IHT in respect of assets situated in the UK; any assets located outside the UK are outside the scope of UK IHT.

A person is regarded as deemed domiciled for IHT purposes only, if they have been resident in the UK for more than 17 out of the past 20 years. They will however remain non-UK domiciled for income tax and capital gains tax purposes.

UK inheritance tax is due on an individual’s worldwide assets if they die whilst domiciled or deemed domiciled in the UK. The amount that UK domiciliaries can pass to their non-domiciled spouse or civil partner is currently capped at £325,000. No IHT is charged on gifts transferred from one individual to another, provided that the person making the gift outlives the gift by seven years. IHT is charged at 40% on death, on relevant assets, subject to a £325,000 nil rate band.

Certain lifetime gifts, e.g. to a trust or company, will be subject to an immediate 20% charge to IHT if an individual is domiciled or deemed domiciled at the time of making the gift.

Information supplied by PriceWaterhouseCoopers PWC, 1 Embankment Place, London, WC2N 6RH Contact: Mike Curran | Tel: 0207 213 8190 | e-mail or Dipan Shah | Tel: 0207 804 0685 | e-mail