Navigating the complexities of capital gains tax and inheritance is crucial for effective financial planning.

CGT (Capital Gains Tax) is a tax charge that is applied to gains from the sale of your possessions. The gain is calculated by comparing the sale price of an asset held for more than one year with the purchase price.

It's applicable to:

• Shares
• Investment funds
• Second properties
• Inherited properties
• The sale of a business
• Valuables including art, jewellery, and antiques
• Assets transferred at below their market value

Currently, capital gains on these assets are taxed at different rates than income tax. As such assets are seen as investments, taking risks carries greater potential rewards.

Inheritance tax is a 40% tax applied after a person dies to estates that are worth over £325,000 – or more if a home or the sale proceeds of a home are included.

For inheritance tax purposes, your estate includes:

• Your savings.
• Possessions including property.
• Pension funds (certain payments from payment funds may be subject to Inheritance Tax).
• The value of any money or property you gave away during the seven years before your death, subject to certain exemptions.

You do not have to pay 40% tax on the first £325,000 of your estate because it is tax-free.

Who is exempt from Inheritance Tax?

• Inheritance Tax is not payable if you leave your entire estate to your husband, wife, or civil partner.
• When a husband, wife, or civil partner doesn't use all of their £325,000 tax-free limit, any unused portion can be passed on to their surviving partner.
• Donations to charity are not subject to Inheritance Tax. You may qualify for a reduced rate of 36% tax on the remainder of your estate if 10% or more of it is left to charity. It is important to consult a lawyer for guidance if you plan to do this.
• The value of gifts up to £3,000 in each tax year is exempt from Inheritance Tax, as are small gifts to individuals and some gifts for weddings or civil partnerships. However, you should be aware that gifts made while you are alive may be liable for Inheritance Tax, depending on their value and when they were made.

If you are a resident in the UK and have income or gains abroad, or if you are a non-resident and have income or gains in the UK, you may be required to pay taxes in both countries. This is called ‘double taxation’.

What is double taxation?

Tax laws vary from country to country. Paying taxes in one country does not mean you don't need to pay taxes in another.

You may be liable to tax on the same income in both countries if you are resident in two countries at the same time or live in a country that taxes worldwide income and has income or gains from another (and that country taxes those earnings since they are derived in that country). It is referred to as 'double taxation'.

In the case of an individual residing in the UK, but who rents out properties in another country, they will probably have to pay tax both in the UK and in that other country. Migrants who have come to the UK to work often find themselves in this situation. If you are a UK resident with foreign income and gains abroad, you should remember that the remittance basis helps to prevent double taxation.

If you live in two countries at the same time, double taxation can also occur.

There are a number of mechanisms that can be used to provide tax relief when two countries tax the same income. In the first place, we should examine whether the UK and another country have agreed to a double taxation agreement that limits both countries' taxation rights.

What are double taxation agreements?

The UK has double taxation agreements with many countries to prevent people from paying taxes twice on the same income. Double tax agreements are also called double tax conventions or double tax treaties. There may be a double taxation agreement that states which country has the right to collect taxes on different types of income. 

Both countries' domestic laws are effectively overridden by a double taxation agreement. If you are not a resident of the UK but earn UK bank interest, this income is taxable under UK tax law as UK sourced income. Nevertheless, if you live in France, the UK-France double tax agreement states that interest should only be taxed in France. Therefore, the UK cannot tax that income. Typically, you would submit a claim to HMRC (on your Self Assessment tax return) to exempt the income from UK tax.

Alternatively, they may allow a set-off of tax paid in one country against tax due in another. UK tax residents (including treaty residents) generally get credit for foreign taxes paid on overseas income. Likewise, if you live in another country and pay UK tax on UK income, that country may credit you for UK tax paid.