Invezz is an independent platform with the goal of helping users achieve financial freedom. In order to fund our work, we partner with advertisers who may pay to be displayed in certain positions on certain pages, or may compensate us for referring users to their services. While our reviews and assessments of each product are independent and unbiased, the order in which brands are presented and the placement of offers may be impacted and some of the links on this page may be affiliate links from which we earn a commission. The order in which products and services appear on Invezz does not represent an endorsement from us, and please be aware that there may be other platforms available to you than the products and services that appear on our website. Read more about how we make money >
Capital transfer tax (UK)
3 Key Takeaways
Copy link to section- Capital Transfer Tax (CTT) was a UK tax on lifetime gifts and transfers of assets.
- It was replaced by Inheritance Tax (IHT) in 1986.
- CTT may still be relevant for older trusts and estates.
What was Capital Transfer Tax (UK)?
Copy link to sectionCapital Transfer Tax (CTT) was introduced in the UK in 1975 as a tax on lifetime transfers of assets and also applied to transfers made upon death. It was designed to capture a wider range of transfers than the previous estate duty, which focused primarily on transfers made upon death. CTT was levied on the value of the assets transferred, and the rate depended on the amount transferred and the relationship between the donor and the recipient.
Importance of Capital Transfer Tax (UK)
Copy link to section- Revenue Generation: CTT was a significant source of government revenue, contributing to the funding of public services.
- Wealth Redistribution: It aimed to promote a more equitable distribution of wealth by taxing large transfers of assets.
- Estate Planning: CTT influenced estate planning decisions, as individuals sought to minimize their tax liability through various strategies.
How Capital Transfer Tax (UK) Worked
Copy link to sectionCTT was levied on the value of assets transferred above a certain threshold. The tax rates were progressive, meaning that higher value transfers were subject to higher tax rates. There were also various exemptions and reliefs available, such as the annual exemption and the spouse exemption.
CTT was complex and often criticized for its complexity and potential for double taxation. These issues contributed to its replacement by Inheritance Tax (IHT) in 1986.
Examples of Capital Transfer Tax (UK)
Copy link to section- A parent gifting a large sum of money to their child would have been subject to CTT.
- Transferring ownership of a property during one’s lifetime could have triggered CTT.
- Creating a trust with significant assets could have led to CTT liabilities.
Real-World Application
Copy link to sectionWhile CTT is no longer in effect, it is still relevant in certain situations. For example, trusts and estates created before 1986 may still be subject to CTT rules. Additionally, understanding CTT can provide historical context for the current Inheritance Tax regime and help individuals and businesses make informed decisions about estate planning and asset management.