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Payment of CGT when gifting rental property

Is it possible for the donee to pay the CGT?

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Hi All,

Although I work in practice, I mostly deal with corporate taxes, so this may be a simple question for some of you, in which case I apologise!

If a parent is gifting rental property to their (adult) child, is it possible for the child to then gift the parent the money due for the CGT liability? I have been unable to find any guidance stating this isn't allowed, but if anyone is aware of any restrictions I'd be very grateful.

The property is owned outright, so I believe that no SDLT would be payable by the child.

It's always been my understanding that the gift would be a PET and that IHT would not be due unless the parent died within 7 years, but I have read a few articles which suggest transfers of property valued over the £325,000 NRB may attract 20% lifetime IHT. Am I correct in thinking these were just poorly worded, and were actually referring to gifts into a trust?

This is for personal tax planning, and I will be discussing in more detail with colleagues in due course, but would like to clear a couple of points in my own mind before going any further.

Thank you for your advice in advance.

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By Tax Dragon
16th Aug 2020 11:13

Inquisitor wrote:

If a parent is gifting rental property to their (adult) child, is it possible for the child to then gift the parent the money due for the CGT liability?

Gift and gift back was the subject of debate in here a few weeks back.

If you instead think of the payment of money as consideration, and the transfer of the property as a sale at undervalue, you'll be on the right road to getting the tax right.

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Replying to Tax Dragon:
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By Paul Crowley
16th Aug 2020 13:07

Had a similat style enquiry just this week, but from a different tack.
Son phoned asking about sale at undervalue of parents rental property to him. Over an hour on the phone.
Son really could not take on the issue that there was a gift being made.

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Replying to Tax Dragon:
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By Inquisitor
16th Aug 2020 13:14

Thanks Dragon, I did suspect this would be the case, but couldn't find anything to back it up.

I spent a fair bit of time looking through previous Any Answers in case a similar question had been asked, but apparently my search skills need some work!

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Replying to Inquisitor:
Psycho
By Wilson Philips
16th Aug 2020 13:20

Don’t feel bad - it is the search engine that required an upgrade.

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Replying to Wilson Philips:
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By Paul Crowley
16th Aug 2020 13:27

And a search box right up top that gives results that help nobody.
Finding the correct search box just for any answers is not intuative

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Ivor Windybottom
By Ivor Windybottom
17th Aug 2020 10:39

The "gift" back of the CGT liability is likely to be consideration for SDLT, but otherwise don't think you've any problem with your description.

I see it as a PET not a chargeable lifetime transfer, so unaffected by value if exceeding NRB, but IHT is not really my thing. I am assuming there is no reservation of benefit by the parent.

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Replying to Ivor Windybottom:
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By Tax Dragon
18th Aug 2020 08:08

I'm not sure why you saw the need to include the words "for SDLT" in your first sentence, but otherwise don't think you've any problem with it.

IHT wise a PET yes, but net of consideration. It would not be reduced by a mere gift back. So I wasn't being catty with my first sentence. Well, OK, I was, but only to make the point that you'd probably want to establish clearly that the payment was indeed consideration, to make sure you collected the tax upsides, as well as the downs.

Having let the cat out of the bag, though, I have no idea what you mean by your comment about it being unaffected by value.

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By Montrose
18th Aug 2020 15:18

The law would be a good place to look for the answers.

The quantum of CGT payable is unaffected by who pays the CGT on the gift. HMRC can require the donee to pay if donor does not pay -see TCGA s282.

The quantum of the transfer of value [ a PET in this case apparently] for IHT purposes will be calculated by deducting the CGT if paid by the donee from the value of the property gifted [IHTA sections 164 and 165]

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Replying to Montrose:
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By Tax Dragon
18th Aug 2020 15:27

It's nice when the law gives the same answers as Any Answers (it doesn't always happen!)

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