Do I owe CGT

Bb7188

Hi guy's, first post here...I am currently 28 and looking to buy a house. In 2009 my great uncle died and left £10,000 each for me and my brother which my mum invested into a royal london fund as we were young at the time. The holdings are now worth around £30,000 which I am hoping to use as a deposit. If my mum cashes out of the fund will she be liable to a large capital gains tax bill or is she better signing the holdings over into my name and me then cashing out? Could she "gift" me the money as a deposit for a house ?

Thanks in advance for any advice !

masonic

If the fund holdings are in your mum's name, then yes she would owe some CGT if she sold or transferred it to you. It probably won't be much if 2 x £10,000 is now worth £30,000. Or do you mean your half is worth £30,000?

Depending on the class of fund, some of the increase could be made up of dividends and not count towards the capital gain.

oliver1951

I would advise talking to Royal London fund and explaining the exact situation to them and seeing what they say. If you have the will and probate that would be helpful. 

poseidon1

Bb7188 said:

Hi guy's, first post here...I am currently 28 and looking to buy a house. In 2009 my great uncle died and left £10,000 each for me and my brother which my mum invested into a royal london fund as we were young at the time. The holdings are now worth around £30,000 which I am hoping to use as a deposit. If my mum cashes out of the fund will she be liable to a large capital gains tax bill or is she better signing the holdings over into my name and me then cashing out? Could she "gift" me the money as a deposit for a house ?

Thanks in advance for any advice !

The strict legal position, is that your mother invested the legacies as bare trustees on behalf of you and brother on terms that you would each become absolutely entitled to your investments at age 18 - the wording of the uncle's will should support that contention, so it was never her money to gift to you in the first place.

So if the investment is indeed a unit trust/ oeic ( this should be confirmed), then the £20,000 gain is taxable on you, not your mother. To make this clear to all concerned you could arrange for your mother to transfer  ownership of the  investment to you prior to sale. Alternatively, she could prepare a simple memorandum in your favour indicating she is selling the investment in her capacity as bare trustee on your behalf, and then you eventually report the gain direct to HMRC.

If the investment is sold during the current tax year, the deadline for reporting the gain to HMRC is 31 December 2025, with tax due and payable by 31 January 2026. However probably wiser to report the gain early in the new tax year in case you forget!

In passing, what is the situation with regard to your brother' s investment since the same scenario applies.

Bb7188

Hi Guys,  thank you very much for the help. We have tried contacting Royal London multiple times and they are really incredibly unhelpful. They say they can't give financial advice etc etc..

So CGT will be owed on the £20k gain? The investment has been held since 2009.. does this mean that the CGT is divided over the years,  as I know there is a personal allowance per year, or is it paid as one big chunk when the units are sold ? Maybe it's better I take smaller amounts out of the fund over "x" amount of years to lower the tax bill and just keep saving up for a deposit in the mean time?

In terms of my brother,  my mother withdrew around 5k for him to buy a car about 3 years ago but as far as I'm aware he didn't declare that to HMRC so he will have less in his fund than me.

Really appreciate the input.

masonic

Bb7188 said:
So CGT will be owed on the £20k gain? The investment has been held since 2009.. does this mean that the CGT is divided over the years,  as I know there is a personal allowance per year, or is it paid as one big chunk when the units are sold ? Maybe it's better I take smaller amounts out of the fund over "x" amount of years to lower the tax bill and just keep saving up for a deposit in the mean time?

CGT arises on the whole gain when the asset is sold. It cannot be spread over tax years. You'll pay it on the gain above the annual exempt amount (currently £3k) and for a basic rate taxpayer it is 10%. If you want to use the sum as a deposit for a house, then spreading the sale over multiple tax years would leave you unable to use it for several years. It's widely rumoured that CGT will be one of the targets for tax rises in the forthcoming budget, so there may be an argument for taking the hit now while the CGT rate is low (at the risk of a higher annual exempt amount being restored in tandem with an increase in the rate of tax, or some form of index linking being introduced).

If, as previous posters have suggested, due to the wording of the will the assets must be treated as being held within a trust, then this page might be worth a read. The value when you became absolutely entitled to the assets becomes relevant for dividing the tax liability between the trustee and beneficiary. In practice this would probably result in no tax liability for your mum and a slightly lower gain for you (unless of course the assets fell in value while you were a child, in which case you could end up paying tax on more than the net gain over the whole period).

Bb7188 said:

In terms of my brother,  my mother withdrew around 5k for him to buy a car about 3 years ago but as far as I'm aware he didn't declare that to HMRC so he will have less in his fund than me.

That gain is likely to have been within the annual exempt amount at that time.

Keep_pedalling

I am afraid your mother has messed up big time on this. First off is should never have been held in her name it should have been put in trust for you, secondly it is almost certain that you were entitled to have taken control of your inheritance  from your 18th birthday,

Because of these mistakes she will have to pay CGT when she cashes them in to give you what she should have given you 10 years agp. You are entitled to the full amount and it is her responsibility to pay the tax because she mishandled your inheritance. 

The money your brother had 3 years ago would not have been subject to CGT as any gain would have been well below the annual allowance available at the time.

Bb7188

Ok thanks everyone. If it had/has been put in trust for me then I will be liable to pay the capital gains tax anyway,  is that correct? So either way me or my mother has to pay capital gains tax on the £20k gain?