This guide is for informational purposes only and does not constitute financial advice. Any reference to tax is subject to personal circumstances and may change in the future.
Capital Gains Tax (CGT) and Inheritance Tax (IHT) can have a significant impact on your long-term wealth. With the right planning and impartial guidance, it’s possible to manage these obligations more effectively and retain more of what you’ve built.
At Prosper, we help you explore the bigger picture behind these taxes; not just the rules, but how they apply to your unique financial goals.
What are wealth taxes?
Wealth taxes focus on accumulated assets, not income or everyday spending. In the UK, two key taxes affect how wealth is transferred or realised:
Capital Gains Tax (CGT): When you sell, transfer, or gift a valuable asset and make a profit.
Inheritance Tax (IHT): When wealth is passed on after death, or via certain lifetime gifts.
Understanding these taxes isn’t just about compliance, but also about taking proactive steps to protect your wealth across generations.
Understanding Capital Gains Tax (CGT)
CGT applies when you make a profit from the sale, gift, or transfer of certain assets. It’s often relevant for those with:
Second homes or investment properties
Portfolios of shares, funds, or private investments
High-value personal items like art, jewellery, or antiques
You typically won’t pay CGT on:
Your main residence (if it qualifies under HMRC rules)
Personal possessions worth under £6,000
Assets held in ISAs or pension wrappers
CGT reliefs and exemptions
You may be able to reduce or defer your CGT liability through:
Annual exempt amount: Tax-free gains of up to £3,000.
Spousal transfers: Tax-free transfers between spouses or civil partners.
Private Residence Relief: May reduce or eliminate CGT on your main home.
Lettings Relief: In some cases, it applies when part of your main home is rented out.
Business Asset Disposal Relief: Potentially reduces CGT when selling a business.
Gift Hold-Over Relief: Defers CGT on certain gifted business assets.
Rollover Relief: Delays CGT when reinvesting proceeds in new qualifying business assets.
Common pitfalls include missing deadlines, failing to report gains, or assuming reliefs apply automatically. This is where expert guidance can make a difference.
Understanding Inheritance Tax (IHT)
IHT is paid on the value of an estate after death, including property, savings, investments, and belongings. In most cases, the tax is paid by the estate before beneficiaries receive their share.
Key IHT allowances and reliefs
Nil-Rate Band: The first £325,000 of your estate is tax-free.
Residence Nil-Rate Band: An extra £175,000 allowance when leaving a home to children or grandchildren.
Spousal Exemption: Unlimited tax-free transfers to a spouse or civil partner.
Charity Exemption: No IHT on gifts to UK-registered charities.
Lifetime gifts
Certain gifts made during your lifetime can reduce the size of your taxable estate:
Annual gift allowance: Up to £3,000 per year tax-free.
Small gifts: Up to £250 per recipient.
Wedding gifts: Up to £5,000 for a child.
Regular gifts from income: May be exempt if they don’t affect your standard of living.
7-year rule: Gifts become IHT-free if you survive for seven years after making them.
Business relief
You may be able to pass on a business or qualifying shares with up to 100% IHT relief, providing valuable opportunities for intergenerational wealth transfer.
Avoidable mistakes include misunderstanding gift rules, not documenting gifts properly, and delaying estate planning until it’s too late.
Planning proactively with Prosper
Navigating wealth taxes isn’t just about avoiding penalties, it’s about ensuring your financial life plan aligns with your values, responsibilities, and legacy goals. That’s where Prosper’s financial guidance service can help.
Delivered in partnership with Horizon Financial Planning and Coaching, our service offers:
Unbiased, fixed-fee guidance
Access to experts with decades of experience in UK tax and estate planning
Flexible support from one-off consultations to full financial planning packages
No asset minimums: guidance is available to you, regardless of your current wealth level
Whether you’re planning a business sale, managing a complex estate, or simply want to avoid common tax traps, Prosper can help you build a clearer strategy.
However, Prosper does not offer personal recommendations on specific financial products or manage investments on your behalf.
Book your free consultation
Start with a no-obligation conversation. We’ll explore your current position, your future goals, and how Prosper can support you. All without any pressure to commit.
Our financial guidance service is provided by our partner Horizon Financial Planning and Coaching, led by Chris Smith, a Chartered Insurance Institute (CII) member with over 30 years of experience in financial services, including a tenure as Global Head of Conduct and Compliance at HSBC.
Join Prosper and book your free consultation to take the first step toward confident tax and estate planning.
We do not offer regulated investment advice.
Glossary
Wealth: Valuable assets such as property, savings, or art.
Capital Gains Tax (CGT): Tax on profits from selling, gifting, or transferring assets.
Inheritance Tax (IHT): Tax on an estate’s value after death.
Nil-Rate Band: Tax-free threshold for IHT.
Relief: A way to reduce the amount of tax owed.
Exemption: Situation where no tax applies.
7-year rule: Lifetime gifts are IHT-free after 7 years.