please refresh my understanding.
Client wants to transfer residential properties to children now. He will have to pay CGT and SDLT on the transfers based on market value.
If he dies within seven years of transfer, these properties become chargeable to IHT.
Therefore, if he dies soon after, he will effectively incur a double tax charge - is this correct? I realise the IHT may be tapered but not by much if death soon after transfer.
thanks for any comments.
Replies (4)
Please login or register to join the discussion.
Nearly there
CGT on market value, but if the transfer is an actual gift, and there is no mortgage, there won't be SDLT to pay - it is based on the actual proceeds, not deemed proceeds.
Otherwise, yes, your understanding is correct. Typically we would advise term assurance if the client is fairly young (i.e. not in their 70s+), but many clients just take the chance.
Possible options to holdover using trusts, but not typically desirable if the values are > NRB.
Hope this helps
CGT and IHT on transferred property?
You might want to consider a trust if you can get CGT holdover under section 260 and the value of the asset is less than the nil rate band.This route will defer CGT until an ultinate sale to a third party.
In many cases it can be better to secure debt on the asset and retain it in the estate and give away the cash. This could mean the asset is rebased on death and sold CGT free by the heirs but the IHT is limited to the ungeared element.
IHT point
Mrclarky,
IHT is not my area but I keep coming across it, so I am probably missing something.
Can you expand on your last sentence. If I understand correctly, you are saying remortgage the property and give away the cash released (a PET presumably and IHT free if surviving for 7 years) then any CGT on the house is with base cost as probate value.
But there is a creditor in the estate, does this not reduce the value for IHT?
.
yes, the loan creditor will reduce the IHT.
but remember the loan capital and interest will need to be repaid.
If it is repaid by the donee this is a sham and wont work, this would consitute a GWROB or failing that income tax on the benefit of the loan repayments.