Will drafting—CGT considerations
Will drafting—CGT considerations

The following Wills & Probate guidance note provides comprehensive and up to date legal information covering:

  • Will drafting—CGT considerations
  • Basic principles
  • Chargeable persons
  • CGT on death
  • CGT exemptions and reliefs

When preparing a Will, the practitioner will be primarily focusing, at least so far as tax is concerned, on exploiting the testator's nil rate band and any available exemptions or reliefs for inheritance tax (IHT) although there may be capital gains tax (CGT) effects for the testator.

CGT is chargeable to individuals, PRs and trustees resident in the UK, on any gain (disposal value less acquisition cost) made on the disposal of a chargeable asset, after deduction of any allowable losses. The resulting net sum is the taxable amount but the applicable annual exemption is then deducted to arrive at the chargeable amount. For further information, see Practice Notes: Introductory guide to CGT, CGT—how is a capital gain calculated? and CGT—reliefs.

Basic principles

In the CGT legislation a number of terms are used and it is essential that at the least, the practitioner has an understanding of their meaning generally and specifically in relation to the testator.

Assets

For CGT purposes, not all assets are chargeable to CGT. Section 21 of the Taxation of Capital Gains Act (TCGA 1992) sets out what can be included in the term 'asset'.

Assets chargeable to CGT include the following:

  1. freehold and leasehold property

  2. shares

  3. legal rights (including options)

  4. goodwill

  5. foreign currency

Assets exempt from CGT include the following:

  1. cash (GBP) sterling

  2. government stock and qualifying corporate bonds