capital gains tax on gift of property

capital gains tax on gift of property

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A client of mine has given a buy to let property to his son in anticipation of reducing his eventual estate for IHS purposes.  His solicitor has said that as no money has changed hands there is no capital gains tax liability.....this was not a business asset so I can't see that any hold over reliefs are available (not that she has referenced this).  Am I missing something really obvious? To me its a disposal, the fact that no money has changed hands is irrelevant.  She says she has done hundreds of these and if CGT were payable, no one would ever do it!  If I am wrong, it would make a disgruntled client very happy!

Replies (29)

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By johngroganjga
20th Oct 2015 16:00

Yes you are of course right.

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By stanbu
20th Oct 2015 16:19

Stamp Duty

I agree with John. The solicitor, or your client, may be confusing CGT with Stamp Duty.

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By Weald Accountant
20th Oct 2015 16:28

Have they already signed the papers and filed with land registry? They should have sought your involvement earlier if they have, it may have proved costly otherwise.

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Out of my mind
By runningmate
20th Oct 2015 17:54

One case I came across

A few years ago I picked up a tax return case of a lady with a portfolio of quoted shares (mostly bank shares).  It turned out that her wealthy father had been advised (very sensibly) to give away these appreciating assets to his children rather than retain them till his death & have them suffer IHT in his estate.

As (bad) luck would have it, after he made the gifts the shares plummeted in value & he died 3 years after gifting them.  I don't know if he had been advised to insure against the possibility of his premature demise.

The tax outcome of course was dreadful.

RM

P.S. I seem to remember that in the 1980s CGT on any gift to an individual could be rolled over until ultimate disposal.  I think that finished in 1989. Maybe someone hasn't been keeping up to date!

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By two sheds
20th Oct 2015 18:01

Thanks all, yes I think runningmate has hit the nail on the head there, I am old so remember the old rollover, think that this solicitor must be well  out of date, thanks for reassuring me.

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Out of my mind
By runningmate
20th Oct 2015 18:56

The danger is ...

The danger is that other clients of this solicitor may have been doing this & either claiming holdover relief when it is not due or not claiming holdover relief & not declaring the capital gain. These things may eventually come to light when the donee sells.  If HMRC catch on to it they could be looking for CGT on the gifts + interest & penalties.  

The solicitor could then be facing negligence claims from multiple clients of hers.

Are you going to tell the solicitor that she has given your client incorrect advice? Presumably your client will not incur interest & penalties as (I assume) the gain is in 2014/15 & will be correctly declared & the CGT paid.

On that basis I think your client probably has no claim against the solicitor (but could ask the solicitor to refund her fee on the basis that her advice was worse than useless).  Do watch the premature death risk though (without giving IHT planning advice).

RM

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By twosheds
20th Oct 2015 22:20

i have asked him to get confirmation in writing......

I have to say I am a bit gobsmacked by it, her explanation to him today was along the lines of "what gain did you make if you gave away something"....yes as you say he will be okay as its this years return although finding the unexpected cgt approx. £30k will be tough as he is now retired...feel bad for him as he is genuine man trying to help his son out

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Out of my mind
By runningmate
20th Oct 2015 23:40

Oh dear! That is a pretty basic failure to understand a fundamental of CGT.

In legal terms s17(1)(a) CGTA 1992 has it covered:-

" Disposals and acquisitions treated as made at market value

 

(1) Subject to the provisions of this Act, a person’s acquisition or disposal of an asset shall for the purposes of this Act be deemed to be for a consideration equal to the market value of the asset —

(a) where he acquires or, as the case may be, disposes of the asset otherwise than by way of a bargain made at arm’s length, and in particular where he acquires or disposes of it by way of gift or . . . "

RM

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By JCresswellTax
21st Oct 2015 10:07

This is what I don't get

Why do solicitors feel the need to give tax advice?

I don't give legal advice and would never even consider doing so!

Frustrates the life out of me!

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paddle steamer
By DJKL
21st Oct 2015 11:05

While some solicitors are fine with tax others are woeful; I have a good friend who is in practice as a solicitor and suspect he could write everything he knows about tax (except Land and Buildings Tax) on the back of a postage stamp and still have room to write the Lord's Prayer in the remaining space.

The first tax course I ever took was that offered by Edinburgh University to their LLB students in 1982, it was a half course (I took it as an extra course outwith my degree, just for interest-sad given I was taking a humanities degree at the time) and was more slanted towards legal interpretation and less to computation; I still own the prescribed text- Tiley "Revenue Law" third edition, 1981, and whilst a great text re say the badges of trade it ispretty lacking in worked examples and more practical matters.

Having said the above accountants can be just as woeful at  interpreting the law, in the words of Clint (not the A Web poster) , "a man's got to know his limitations"

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By TaxSpud
21st Oct 2015 11:29

Perhaps the son could be persuaded to treat this as a sale at undervalue ie for the £30K tax bill. CGT treatment the same but dad now has £30K cash to pay the tax man, son still receives a valuable asset for a cheap price. If son does have the cash maybe he could borrow on the property and pay dad? Does anyone see a problem with this?

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By two sheds
21st Oct 2015 12:07

Thanks Spud, along the lines of my suggestion only problem is Son has packed his job in and gone to University...

 

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By johnkcound
26th Oct 2015 10:53

CGT on gift of property

An execellent example of why solicitors should not be allowed to give tax advice!

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By johngroganjga
26th Oct 2015 11:06

Tax is a branch of the law. Many solicitors, and indeed barristers, are leading experts in that branch of the law, or aspects of it. So the question is not whether solicitors should be allowed to give tax advice, but whether solicitors, and indeed accountants, should be allowed to give tax advice without the necessary knowledge and ability to do so safely.

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By SteveHa
26th Oct 2015 11:39

We work with a solicitor

When asked by clients, we refer to the same solicitor. He will then draw up whatever documents are required for the job, and they come back to my desk to consider the tax position. It's refreshing to work in a manner where demarcation is clear.

It's a shame more solicitors can't work that way.

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By John R
26th Oct 2015 11:52

Check not a discretionary trust

You need to check that the asset has not in fact been transferred to a discretionary trust rather than outright, as clients do not always understand the difference. If there is such a trust, the transfer would be immediately chargeable to IHT (but subject to any available nil rate band etc) and this would have enabled a holdover relief claim to have been made.

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By bilco123
26th Oct 2015 13:07

Gift of property

In this case the giver of the property should have it valued at or near the time of the gift. If there is no increase in value from when the property was originally purchased then there would be no CGT to be paid. Normal IHT rules apply thereafter.

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By charlotteponder
26th Oct 2015 14:14

Have you had sight of any written advice from the solicitor,or is this all the client telling you what his solicitor has told him (as it so often is). I'd be interested to see the written advice, there may well be an open and shut negligence claim against the solicitor if they have advised that CGT will not be payable. Then again, they have probably disclaimed responsibility for CGT advice in their T&Cs! They usually do...

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By hiu612
26th Oct 2015 14:18

Negligence claim

Runningmate seems to have suggested, in passing, that the client does not seem to have any claim against the solicitor. I think with a £30k tax bill caused by the solicitor's poor advice (as other's have noted, there would have been route(s) where holdover was available, such as a trust) I'd be knocking on their door pretty hard with a view to being compensated for that advice. I don't suppose any of this was set out in writing at any stage was it?

Joining in the memory game, I once had a client who rented a property to his daughter. He got a terminal diagnosis and 6 months before death a solicitor transferred the property to the daughter as part of simplifying matters. £28k CGT bill added to the IHT bill. Needless to say I wasn't consulted.

As John says, many solicitors are tax experts. Sadly this one wasn't.

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By johngroganjga
26th Oct 2015 14:54

Claim
But in order to bring a claim against the solicitor the client will have to get over another hurdle that has not been mentioned - namely that if he had been properly advised as to the tax consequences of the transaction he was contemplating he would not have completed it. It is not enough to say that the advice given was wrong or bad. He has also to show that it made a difference to what he did.

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By North East Accountant
27th Oct 2015 08:40

They should have taken advice

I had a client do this years ago and rang me after the event. Said he didn't want to ring me and incur fees.

To say he was gutted when I told him he had crystallised a £88K CGT bill was an understatement!

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Morph
By kevinringer
27th Oct 2015 14:45

Market value rule

This is a transaction between connected parties so the market value rule comes into effect - see http://www.hmrc.gov.uk/manuals/cgmanual/CG14560.htm. I've recently come across a solicitor who misunderstood something similar. I would want to be told if I got something like this wrong so please tell the solicitor.

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Out of my mind
By runningmate
27th Oct 2015 18:37

Claim (or not)

My thinking with regard to a claim against the solicitor was that it might be argued that - even with the 2014/15 CGT liability - it was still good advice to gift an appreciating asset rather than hold onto it until death.

If that is the case then the solicitor gave good advice (without understanding or explaining the full tax implications) so there would be no 'damage' suffered which could be the basis of a claim.

RM

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Replying to the_drookit_dug:
By johngroganjga
28th Oct 2015 08:42

Agreed

runningmate wrote:

My thinking with regard to a claim against the solicitor was that it might be argued that - even with the 2014/15 CGT liability - it was still good advice to gift an appreciating asset rather than hold onto it until death.

If that is the case then the solicitor gave good advice (without understanding or explaining the full tax implications) so there would be no 'damage' suffered which could be the basis of a claim.

RM

Agreed. My point exactly.

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By harbourmaster
06th Nov 2015 18:03

Money laundering?

'She says she has done 100s of these.'

Do you feel a ML Report coming on?

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By johngroganjga
06th Nov 2015 18:51

But as you don't know the names of the solicitor's clients how can you report them?

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David Winch
By David Winch
06th Nov 2015 20:47

Money laundering report?

I cannot see any basis for reporting the solicitor's other clients (even if you could identify them).  They have obtained legal advice from a solicitor & followed it, so I cannot see that they could be regarded as dishonest.  Hence no criminal tax evasion & no money laundering.

Similarly so long as the solicitor believes the advice she has given is correct (even though we know it isn't) then she has not been dishonest & has committed no criminal offence, so no money laundering.

It gets a bit more complicated if the solicitor realises she has been giving incorrect advice but then chooses not to do anything to sort out the past errors.  It might be argued in that event that she was then being dishonest & in failing to notify her clients & take steps to have the position corrected she was committing some sort of offence from which she was obtaining a financial benefit (even in the form of not being subject to claims for negligence).  Then there might be a case for reporting her.  But I do not think we are in that position.

David

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By cparker87
07th Nov 2015 13:59

Negligence

Seems like a lot of us accountants are thinking we know what is and is not negligence. Perhaps we should leave that one to the solicitors.

If my client came along saying their solicitor had advised there'd be no tax implications I'd certainly be suggesting they go  get some legal advice on negligence. 

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Out of my mind
By runningmate
07th Nov 2015 14:54

@cparker87

cparker87 wrote:

If my client came along saying their solicitor had advised there'd be no tax implications I'd certainly be suggesting they go get some legal advice on negligence. 

I think that is wise.  But don't be thinking that it is an open & shut case that the badly advised client will be able to make a successful claim.  The issues likely to arise would include, "Would the client have done the same thing if he / she had been fully & properly advised of the tax implications?" and "Has the client suffered any loss as a result of following the solicitor's advice?".

The latter question would include consideration of possible IHT savings arising as a result of the gift.

RM

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