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Tax Allowances and Exemptions

In the fourth in our series of articles on Tax Planning Opportunities, Rachael Cornwell and Stuart Walton take a look at some of the tax allowances and exemptions available.

Tax Allowances and Exemptions

Rachael Cornwell + Stuart Walton


Tax Year End series.  No 4: Tax Allowances and Exemptions

By Rachael Cornwell & Stuart Walton of Charles Stanley Financial Planning.

Capital Gains Tax (CGT)

The annual CGT exemption is £11,700 per individual in the 2018/2019 tax year.  This will increase to £12,000 per individual in the 2019/2020 tax year.

There may be planning opportunities to make use of this annual exemption if you hold investments in a general investment account by selling investments and purchasing them back within an ISA or a Pension.  In this way the exemption is utilised whilst the assets are also transferred from a taxable environment to one which is largely tax free.

CGT is not payable on assets that are transferred to a spouse/civil partner.  This may present a tax planning opportunity in the event you wish to sell the assets.  Should you or your spouse/civil partner have capital losses available to offset capital gains, consideration could be given to transferring the assets to the spouse/civil partner prior to sale before the end of the tax year.

If you do not use your annual CGT exemption before the end of the tax year, it will be lost; it cannot be transferred between tax years.

Inheritance Tax (IHT)

When planning to mitigate IHT there are exemptions that an individual can make use of:

  • Annual gift exemption - £3,000 each year.  Any unused part of this exemption can be carried forward into the next tax year but cannot be claimed unless the current year’s exemption of £3,000 has been used up.  If you have any remaining allowance to carry forward from 2017/2018 it will be lost after 5th April 2019.
  • Small gifts - £250 to an unlimited number of recipients each year.
  • Wedding gifts – up to £5,000 depending on the relationship between the donor and the recipient.

In addition to the exemptions above, there may be opportunities to start a pattern of gifts that would qualify for the Normal Expenditure out of Income exemption.  Outright gifts are generally exempt from IHT if they are:

  • Paid out of surplus income (not capital);
  • Made regularly as a pattern of gifts;
  • Do not reduce your normal standard of living.

There is no tax charge on lifetime gifts to individuals  or certain types of trust provided the donor lives more than seven years from the date of making the gift; these are known as Potentially Exempt Transfers (PETs).  Once the above exemptions have been used, consideration can be given to making lifetime gifts to control the size of your estate for IHT, although not dependent on tax year end.

Charitable Giving – Gift Aid

Charities can reclaim basic rate income tax directly from HMRC for cash donations made under the gift aid scheme. Depending on whether you are a higher or additional rate taxpayer, additional tax relief of either 20% or 25% can be reclaimed via your tax return.

If your earn in excess of £100,000 per annum and have lost some or all of your personal allowance, gift aid donations can reduce your taxable income and may restore some or all of your personal allowance. A ‘carry back’ facility can also be utilised, whereby, gift aid donations made in the current tax year can be treated as paid in the 2017/2018 tax year in certain circumstances.

Charitable Giving – Quoted Securities

Quoted shares and securities can be gifted to charity free of CGT.  In addition, an amount equal to the value of the gift to charity can be claimed as a deduction against taxable income.  In certain circumstances, it may be tax efficient to make a gift to charity in this way prior to the end of the tax year.


Charles Stanley is not a tax adviser.  Information contained in this article is based on our understanding of current HMRC legislation.  Tax reliefs are those currently applying and the levels and based of taxation can change.  Tax treatment depends on the individual circumstances of each person or entity and may be subject to change in the future.  If you are in any doubt, you should seek professional tax advice.

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