Valuation of PET on death

Valuation of PET on death

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A person gave a property worth £1m to his son which had no base cost, and therefore a gain of £1m crystallised and CGT at 28% of £280k.  For IHT this was a PET.  The person died 3 years later so that the PET becomes chargeable to IHT.  At the time of death the property was valued at £1.5m. 

I have two questions.  One - what is the IHT valuation on death?  Is it £1.5m, £1m or some other amount?  Two - is there any credit for the CGT paid on the inter vivos gift?    If he had retained the property IHT would have been chargeable @ 40% on death (in this case £600k - ignoring the nil rate band) but there would have been no CGT and the son would have inherited a base cost of £1.5m.  My sense is that this ought to be a simple question but I can't find the answer anywhere.

Thanks in advance for ay guidance.

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By dropoutguy
21st Oct 2014 19:14

Off the top of my head

One -  £1m

Two -  No

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By dropoutguy
21st Oct 2014 19:23

Or, more precisely


CGT paid by a donor cannot in any circumstances reduce the IHT liability.  If the donor has failed tto pay, resulting in an assessment on the done, then relief does become available against value

subsequently becoming chargeable.

 

I've never had this happen in real life in 32 years in practice mind you.

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By CrowtherP
22nd Oct 2014 13:17

date of IHT charge and values

The only CGT /  IHT overlap I am aware of is where there is a gift is made at undervalue, that gives rise to immediate IHT charge.

This set-off occurs on gifts into e.g. A discretionary trust, under section 260 [gifts which are P.E.T.s do not count for this set-off rule] and the IHT is deductible in respect of the eventual CGT actually due upon sale / disposal of the asset.The value of the gift is the value of the gift at that time, not the value at the later death date.   The value is thus crystallised.If the death was three years and one day after the date of the gift, you might get some taper relief on the amount of the tax.   20% taper is due if before the fourth anniversary of the gift.

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By CrowtherP
22nd Oct 2014 13:30

IHT date of gift: see IHTM14883

If a disposition is made by way of a contract of sale and the ‘purchase exemption’ does not apply, the date of the transfer would normally be the date of the formal contract rather than the date of completion. 

An outright gift of an interest in land is completed on the execution of the formal transfer, conveyance or assignment of the property or of a declaration of trust evidenced by writing (Law of Property Act 1925 S53 (1)(b)). Any preliminary agreement to make the gift which lacks the necessary formality would be ineffective.

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By Portia Nina Levin
22nd Oct 2014 13:39

The death estate has had relief for th CGT

There would have been £280K more in the death estate had the CGT liability not arisen.

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By CrowtherP
22nd Oct 2014 13:41

sitting tenant?

No chance there was a sitting tenant when the gift was made, I suppose?  This would lower the value, taken at year zero.

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