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  • Katherine Bullock

Christmas 2020 – The Second Ghost - Tax and The Ghost of Christmas Presents

The days grow shorter as we move further into December, and Christmas draws closer. But before we reach the holiday itself, there are two more ghostly visitations to enjoy. This week, the Ghost of Christmas Presents joins us with sage advice about tax efficient giving over the holiday season. The giving and receiving of presents might not actually be the true meaning of Christmas, but it is certainly a key aspect if popular culture and most children are to be believed. With that in mind, perhaps it is no surprise that the Ghost of Christmas Presents has come to warn us about the tax dangers of this most commercial of holiday traditions.

"...the Ghost of Christmas Presents has come to warn us about the tax dangers of this most commercial of holiday traditions..."

In broad terms, Christmas gifts, like gifts at any other time of year, are treated as a disposal for Capital Gains Tax (CGT) purposes and attract tax on the amount by which the market value at the date of gift exceeds the cost of acquisition. Individuals, for now at least, benefit from an annual exemption for gains accruing during the tax year, currently up to £12,300. For those already making substantial gains, additional gifts may not fall within the annual exemption, but there is an exemption where the asset gifted is a chattel worth £6,000 or less. If the value of the gift is more than £6,000, the chargeable gain is limited to 5/3rds of the excess or the actual chargeable gain, whichever is lower. The tax charge cannot be avoided by disposing of sets of assets worth more than £6,000 in pieces and the disposal of two or more assets to the same or connected persons are treated as a disposal of a single asset, whether or not gifted at the same time. Fortunately, this means that all but the most lavish of gifts can normally be given without worrying about incurring an unexpected CGT bill.

But what if you wanted to be especially generous this year and give away something that exceeds the £6,000 limit? Could the quirks of the CGT legislation work in your favour? Certainly, if you are selective about your gifts and are lucky enough to own the right kind of assets, you may be able to give presents without paying CGT. Putting to one side assets such as gilt edged securities and debts – probably not the most exciting stocking filler - are there any more promising options available? A gift of a ‘wasting assets’, that is tangible moveable property with a predictable life of less than 50 years (but not freehold land), may benefit from exemption from CGT. Items of plant or machinery are always deemed to have a predictable life of less than 50 years. Wasting assets might include antique clocks, caravans, pleasure boats, aircraft, classic cars, horses and fine wines. Many of these items of course can be highly valuable, collectible and carry investment status. For example, as items of machinery, antique clocks and watches will always be wasting assets, even though they clearly have a life that in reality exceeds 50 years. The test for non-plant assets is the predictable life of the asset determined at the time of acquisition and not the time of purchase. Predictable for these purposes means useful. A wine bought and expected to be undrinkable in 50 years, but still drinkable 60 years later, will still be a wasting asset. Port, Madeira and Cognac, having very long storage lives, may be another matter.

There is also a general exemption on CGT for private cars - so there is no need to worry if you feel the urge to give your friends sports cars from your collection this Christmas. At least, no need to worry about CGT. However, bear in mind with all of these items that it is essential to fall within the specific requirements of the legislation; in particular, if they are used for the purposes of a trade, profession or vocation and as a result qualified or could have qualified for capital allowances or the disposal is seen as part of a pattern of trading or business, it is likely to be subject to CGT. At Christmas one can hope that the latter issue should not present too much difficulty, but it is worth bearing in mind for the rest of the year and ensuring that any disposals are appropriately documented.

There are other reliefs that might remove or reduce a charge to CGT. Gifts between spouses and civil partners living together or to a charity should not give rise to a CGT liability.

And, of course, there are other taxes to consider. In particular, to avoid driving my dear reader into despair and gloom, this tale does not cover inheritance tax, but the inheritance tax consequences of lifetime giving should not be overlooked.

And so, another Christmas conundrum is solved, the strange peculiarities of the capital taxes regime revealed, and the Ghost of Christmas Presents is appeased, knowing that it will not be charged tax on its oddly specific Christmas gifts of cars and exceptionally valuable watches and wines. Two of our three Christmas spirits have been returned to their rest with their tax-related worries solved. However, our seasonal haunting is not yet over, as the Ghost of Christmas Futons comes to us next week with a surprising problem that has been brought to prominence more than ever in 2020…


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