Moneeza Siddiqui outlines tax implications of assets gifted or sold at an undervalue.
Surprising loved ones with a gift can potentially backfire on the donor, who may end up with a tax charge in exchange for giving up the asset.
Depending on the recipient, the nature of the asset and its value, a gift could lead to a capital gains tax (CGT) or inheritance tax (IHT) charge.
What is a ‘gift’?
Apart from outright gifts, a sale to a connected party at less than the asset’s market value is also considered a gift from the tax perspective.
In either case, the market value of the asset at the time of the transfer is treated as the proceeds of the transaction.
This is different from the normal CGT treatment of an asset being sold at a reduced price to make a quick sale.