Client gifts house to sons and pays CGt but IHT ?

Didn't find your answer?

A client was gifted an investment property by his parents in 1980s. He is now 81 and wishes to gift the property to his sons. He will pay around £25k in CGT but is querying if he dies in 7 years will his sons also pay IHT on it as it or part of it will revert into his estate. Doesnt seem right as double taxation but cant think of relief that would avoid this. Any thoughts woudl be appreciated.

Replies (17)

Please login or register to join the discussion.

avatar
By Tax Dragon
29th May 2020 14:23

On the other hand, it doesn't seem right that you would be able to avoid IHT at 40% or more simply by gifting the asset away the day before you died....

(There is actually a measure of double tax relief - the £25k paid in CGT is excluded from the IHT charge.)

Thanks (1)
Replying to Tax Dragon:
avatar
By Justin Bryant
29th May 2020 15:09

What is your legislative justification for your statement "the £25k paid in CGT is excluded from the IHT charge"?

I am not aware of any such IHT relief and neither is the bloke who wrote this:
"The capital gains tax paid at the time of the gift will not be allowed as a deduction against the inheritance tax charge and so both taxes would become payable"
https://www.taxation.co.uk/articles/interaction-of-capital-gains-tax-and...

A gift in & out of a DT may be better per the above article.

Thanks (0)
Replying to Justin Bryant:
avatar
By Tax Dragon
29th May 2020 15:13

Justin Bryant wrote:

What is your legislative justification for your statement "the £25k paid in CGT is excluded from the IHT charge"?

"Excluded", not "deducted".

Thanks (0)
Replying to Justin Bryant:
avatar
By Accountant A
15th Jun 2020 18:28

iyc

Thanks (0)
Replying to Accountant A:
avatar
By Tax Dragon
29th May 2020 15:43

Accountant A wrote:

If you pay £25k CGT then your assets for IHT have been reduced by £25k. Surely you don't add back the donor's CGT payment to his estate??

Not unless there is legislation that says you have to, as there is for example with donor-paid lifetime IHT [eg on setting up a DT] - this tax is part of the 'transfer of value' charged to IHT.

Not for the first time, Justin has demanded legislative support for a statement that is true unless legislation says it is not. Not for the first time, it is Justin that should be providing any legislative justification that is necessary.

Thanks (0)
Replying to Accountant A:
avatar
By Justin Bryant
29th May 2020 15:55

I had initially assumed that that was what he meant, but gave him the benefit of the doubt, as such a bleedin' obvious statement does not even amount to very poor sarcasm.

He cannot even get a bleedin' obvious statement right, as the CGT is (very, very obviously) excluded from the estate (for bleedin' obvious reasons), not from the IHT charge itself (there may be no IHT charge if the estate is low value or there is relief etc.).

Thanks (0)
Replying to Justin Bryant:
avatar
By Tax Dragon
29th May 2020 15:57

Seriously? A PET is not part of the CEOD. And CGT is not part of the PET. If you're going to criticise to the point of pettiness, get it right yourself.

Thanks (0)
Replying to Tax Dragon:
avatar
By Justin Bryant
29th May 2020 16:30

At last, a good pun (even though I have no idea what you mean)!

Thanks (0)
Replying to Justin Bryant:
avatar
By Tax Dragon
29th May 2020 16:50

It made me smile, glad it wasn't only me :-)

You called me out for saying "IHT charge" instead of "charge to IHT". No doubt you are right about my lack of precision.

Your inaccuracy is to talk about L/T events as being added back into the estate. Admittedly, you were copying the OP and AA with that language, but it's wrong. A failed PET is charged; the cumulation reduces the NRB available to the Estate, but the PET is not added to the Estate. It's an important distinction - think taper relief.

OP, this is all useful stuff for you no doubt (not so sure about Nicole's contribution, mind). But if the 81yo's estate is sizeable, you should refer him to someone that does IHT as a day job (often, but not always, they'll have "TEP" after their name).

Thanks (0)
avatar
By Accountant A
15th Jun 2020 18:31

oug

Thanks (0)
Replying to Accountant A:
RLI
By lionofludesch
30th May 2020 07:24

Accountant A wrote:

My income gets taxed and then the cheeky sods make me pay VAT when I buy stuff with what's left!

Yes, I find that annoying too. I only buy Jaffa Cakes and chocolate Nesquik these days.

Thanks (0)
Replying to lionofludesch:
avatar
By Tax Dragon
30th May 2020 07:51

I only spend up my personal allowance (*) each year. (The bit with tax deducted is for paying the mortgage.)

(*) And dividend allowance etc... modern tax rules destroy the purity of my joke. But underscore the point, which is that I can spend quite a lot before double tax really kicks in.

Thanks (0)
avatar
By NicoleM
29th May 2020 16:52

Can you set up a Limited Company. Transfer the property into the company (change the title deeds) and make the dad and son shareholders of the company.

After a few years dad could pass his shares to his son and use gift relief and Entrepreneur relief? - I believe this is allowed if the property is a furnished holiday let.

As it is an investment property it may be more tax efficient to have the property in a Ltd company anyway.

Thanks (0)
Replying to NicoleM:
paddle steamer
By DJKL
29th May 2020 19:04

Does Dad have a few years?

You really need to ask if tripping CGT at his age is really a good idea, state of health etc.

Dad could always sell to a company owned by son and the price could be left unpaid, a loan from Dad to Co maybe paid down over years, whilst the loan remains in the estate any uplift in value thereafter will not form part of Dad's estate. Catch is property is stuck in the company.

Similarly Dad can maybe sell direct to son at MV leaving a loan to son to be paid down slowly, balance of loan forming part of Dad's estate at his death, depends how fast loan could get amortised.

Talking to a TEP, as mentioned up thread, is a very good idea as a look at the total IHT picture is advisable before doing anything; ad hoc single asset planning is probably not a clever idea.

Thanks (1)
Out of my mind
By runningmate
29th May 2020 16:46

OK, so say the old guy has an investment property worth £500k and other net assets worth £1m.
He gives away the investment property & pays CGT of £25k.
He dies one year later.
The IHT on his estate will be based on £1.475m (because he has paid the £25k out in CGT).
Is that the position?

Thanks (0)
Replying to runningmate:
avatar
By Tax Dragon
29th May 2020 16:52

See above reply to Justin. The gift is not part of the estate.

Oh, unless there's a reservation of benefit, of course. That's different.

Thanks (0)
Replying to runningmate:
RLI
By lionofludesch
30th May 2020 08:05

Who's responsible for the tax on the PET?

Thanks (0)