CGT & IHT interaction

CGT & IHT interaction

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Client was gifted 1/2 share in house by mother in mid 1980's; mother then continued to live there until 2005.

House was sold in 2005 for approx. £600,000, at the time the client paid CGT on her share of proceeds, say £300,000 @ 40% = £120,000.

Mother died recently, because this is an gift with reservation the £300,000 is a potentially exempt transfer, which starts when the house is sold. Due to the short amount of time involved the £300,000 is then chargable to IHT @ 40%, another £120,000.

So out of a total of £300,000 gifted to her £240,000 goes in tax. (the actual figures aren't so bad due to various exemptions but I'm ignoring them for the example).

That can't be right or can it? Is there any relief available.

Anon

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By AnonymousUser
10th Jul 2007 12:33

Big if
The mother gave 50% of the house to your client, is there a legal document? For IHT, the mother lived on in the house, did she pay any form of rent, was there an actual reduction in her estate or was it only on paper? If no reduction in her estate then no transfer for IHT took place at the time (1980's). The sale of the house would generate CGT for your client if they were the 50% legal owner, the mother would not have CGT due to PR. After that normal IHT should apply.

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