Capital Gains Tax and Inheritance Tax Planning in the UK: What you need to know

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Capital Gains Tax and Inheritance Tax Planning in the UK: What You Need to Know

When thinking about passing wealth to the next generation, two taxes usually shape the conversation in the UK:

Capital Gains Tax (CGT) and Inheritance Tax (IHT).

They operate at different moments.

Capital gains tax is usually triggered when assets are sold or transferred.Inheritance tax is usually assessed when wealth is passed on after death.

But in practice, the two are closely connected.

Decisions made during life, selling assets, gifting money, transferring property, restructuring ownership, can influence both taxes, sometimes years apart.

Behind questions about CGT and IHT are often deeper concerns:

• Will my family lose a large portion of wealth to tax?

• Should I sell assets now or later?

• Is gifting sensible or risky?

• Am I planning efficiently, or creating problems unintentionally?

Understanding how these taxes interact is the starting point for calm, deliberate planning.

The key difference between capital gains tax and inheritance tax

Capital Gains Tax is charged on the profit made when disposing of certain assets, such as:

• Investments and shares

• Buy-to-let property or second homes

• Business assets

• Valuable personal possessions above specific thresholds

It is not charged on the full value, only on the gain above allowable costs and annual allowances.

Inheritance Tax, by contrast, is usually charged on the value of an estate at death, after available allowances and reliefs are applied.

While CGT is about transactions during life,IHT is about the transfer of wealth after death.

Effective planning requires seeing both taxes together, not in isolation.

Why CGT and IHT planning are connected

Many financial decisions influence both taxes:

• Selling an asset may trigger CGT now but reduce a future IHT liability.

• Holding an asset until death may avoid CGT entirely but increase IHT exposure.

• Gifting wealth early may reduce IHT after seven years but could involve CGT at the point of transfer.

• Transferring assets between spouses can reshape allowances for both taxes.

This means the real question is rarely:

“How do I reduce one tax?”

It is usually:

“What sequence of decisions leads to the best overall outcome?”

And that is a planning question, not just a tax calculation.

The role of allowances and reliefs

Both CGT and IHT include allowances designed to reduce tax in ordinary circumstances, including:

• Annual CGT allowances

• Private Residence Relief on a main home

• Transfers between spouses free of CGT and usually IHT

• Nil-rate bands and residence nil-rate bands for inheritance tax

• Business and agricultural reliefs in qualifying cases

Used thoughtfully, these allowances can significantly change outcomes over time.

But they work best when decisions are timed and sequenced deliberately, rather than made reactively.

Planning is rarely about eliminating tax

A common misconception is that good planning means paying no tax at all.

In reality, effective long-term planning is usually about:

• Paying the right tax at the right time

• Avoiding unnecessary or accidental tax

• Preserving family flexibility and security

• Aligning wealth with personal intentions

The goal is not avoidance.

It is clarity.

A more useful starting question

Instead of asking:

“How do I reduce capital gains tax or inheritance tax?”

A more grounded question is:

“What decisions today create the strongest long-term outcome for me and my family after all taxes are considered?”

That shift changes the conversation from rulesto judgement.

And judgement is where good planning lives.

Exploring each area in more detail

The guides below explore the practical questions people most often ask about:

• How capital gains tax works

• Ways CGT may be reduced legally

• How inheritance tax is calculated

• The rules around gifting money

• Planning decisions that affect both taxes

Together, they form a clearer picture of how UK wealth is taxed — and how thoughtful planning can protect flexibility over time.

A calm place to think first

If you are considering selling assets, gifting wealth, or reviewing inheritance tax exposure, immediate action is rarely the first step.

Often the most valuable starting point is simply to clarify:

• The size and structure of your estate

• Where capital gains tax might arise

• Which inheritance tax allowances may apply

• Whether timing could materially change the outcome

That clarity creates space for better decisions.

Evoa exists to provide that quiet thinking space, before advice, before action.