Double tax on death?

Double tax on death?

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Mrs K, UK resident and domiciled , owned 100% of  X Ld. a BVI company whose only asset is a holiday home outside the UK. On her death the property is valued at £1,000,000,  the shares in X Ltd are valued accordingly and IHT payable on the value of the shares. X Ltd. then sells the property for £1,000,000.

It transpires that historically X Ltd paid £500,000 for the property. For the purposes of s.13 TCGA  [and after allowing for indexation relief on the deemed UK residence which applies to X Ltd ], X Ltd is deemed to have made a gain of £400,000, on which  by virtue of TCGA s13 the executors now have a UK CGT liabilty of £112,000. No relief is in practice avail;able under TCGA s13(5A) or (7), because there is no gain arising to the executors if they immediately liquidate X Ltd. so nothing against which to offset the s13 gain, and no IHT relief is available for the CGT payable.

A claim under s.13(4)(cb)-ie no tax avoiding purpose  in the establishment and use of X Ltd, seems the only escape .

Any thoughts?

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By Portia Nina Levin
21st Jan 2015 16:41

Two thoughts

I assume that any income from the holiday home was self-assessed by Mrs K during her lifetime under ITA 2007, Part 13, Chapter 2 (transfer of assets abroad)?

If it was not, perhaps the BVI (registered) company was UK resident all along?

The structure appears to have never offered any advantages and always have been encumbered with the disadvantage that is now complained of.

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