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A disposal of a chargeable asset, even by way of gift, can give rise to a chargeable gain for CGT purposes. Yes, even though you receive nothing, you are usually treated as having made a chargeable disposal for CGT purposes and as having received market value. Naturally, a gift of sterling does not give rise to this problem, nor does a gift of your principal private residence – not that many make a lifetime gift of their main home nowadays. CGT could represent a high front-end charge to IHT planning and could call into question the validity of such planning. This is especially so for older planners whose gains would be wiped out on death and assets revalued (with no consequent liability) for CGT purposes. Take the case of an ageing married couple. They wish to make gifts to their children and grandchildren from their investment portfolio but the assets have significant unrealised gains in them. There is a potential IHT saving of 40 per cent but CGT will have to be paid on the gain deemed to have been realised by virtue of the gift. Where a person acquires or disposes of an asset otherwise than by way of bargain at arm’s length and, in particular, where he acquires or disposes of it by way of gift, the acquisition or disposal is deemed to be for consideration equal to the market value of the asset. This is an important issue for older potential donors to consider, especially as the CGT liability is current and the IHT saving pros- pective. Of course, the IHT saving would be on the whole value of the asset and CGT would only be levied on the gain. For assets acquired since April 1998, the calculation of the taxable gain will take account of taper relief and then the available annual exemption will be applied. For assets held before 1998, it is more complex. A number of changes to CGT were introduced in 1998. Further amendments were made in the Finance Acts of 2000, 2002 and 2003. Reform was aimed at encouraging the longer-term holding of assets by reducing the effective rate of CGT. It was also intended to encourage entrepreneurial activity by rewarding longer-term investment in businesses. For disposals of business assets after April 5, 2002, maximum taper relief is available after assets have been held for two years. Originally, to qualify for maximum relief, assets had to be held for 10 years. Gains on business assets held for two years or more are taxed at a rate equivalent to 10 per cent or less. Gains on non-bus- iness assets held for 10 years or more are taxed at a maximum equivalent rate of 24 per cent. It was also intended to simplify CGT by progressively removing the indexation allowance. However, bearing in mind the complex rules for calculating taper relief where a taxpayer has more than one gain and loss in a tax year, the jury is still out on whether the simplification target has been hit. For gains realised on or after April 6, 1998, indexation allowance is given up to April 1998 but not thereafter. For an asset held at April 6, 1998 and disposed of on or after that date, indexation allowance is computed for the period from the date of acquisition to April 1998 but not for the period from April 1998 to the date of disposal. For assets acquired on or after April 1, 1998, there is no indexation allowance. From April 6, 1998, indexation allowance was replaced by taper relief, which reduces the chargeable gain according to how long the asset has been held since April 5, 1998. It is more generous for business assets than non-business assets. Non-business assets acquired before March 17, 1998 qualify for an addition of one year to the period for which they are treated as held after April 5, 1998. Taper relief is applied to the net chargeable gains after the deduction of any losses suffered in the same tax year or carried forward from earlier years. The annual exempt amount is then deducted. The allocation of losses to gains is on the basis that produces the lowest tax charge. In certain situations, taper relief operates as follows in respect of holding periods after April 5, 1998: l Where an asset has been transferred between spouses, taper relief on a subsequent disposal is based on their combined period of holding. l For other no-gain/no-loss transfers and for gift holdover relief, taper relief operates by reference to the holding period of the new holder only. l Where gains have been relieved under a provision which reduces the cost of a replacement asset (such as rollover relief for business assets), taper relief operates by reference to the holding period of the new asset, and where a relief defers the gain on a disposal until a later occasion (such as deferral relief on reinvestment in an EIS company) taper relief operates by reference to the holding period of the asset on which the deferred gain arose. l Where an investor disposes of shares in an EIS company and defers the gain by reinvesting into another EIS company, taper relief on a subsequent disposal in respect of the deferred gain will count from the original purchase date of shares in the first company. The only CGT deferment opportunity for the giver is if the gift is a chargeable transfer. I will look at this next week.