Share this content
0
625

Property sale to daughter

CGT & Inheritance Tax

Didn't find your answer?

Search AccountingWEB

A client with an annual income of approx £30K owns a small property that he had let for several years but has been empty for the last two.  He has never lived in the property.  He now wants to transfer ownership of it to his daughter.  The original cost was £120K and market value is £170K.  The plan is that there will be a sale to the daughter for £50K.  Does this mean that (a) there is a gift of £120K (MV less consideration) for inheritance tax purposes and (b) there is a capital gain of £50K (MV less original cost)?  Somehow doesn't feel right but looks like it is!  If so, is there another way of doing it, to achieve the same net result between father and daughter but without the CGT charge?

 

 

Replies (5)

Please login or register to join the discussion.

avatar
By Accountant A
21st Aug 2019 20:51

Taxied wrote:

Who came up with "the plan" and what was the thinking behind it?

Taxied wrote:

Somehow doesn't feel right ... 

In what sense? £170,000 is being given away [EDIT: I'm talking cobblers! I'm out of here! I meant the value of the asset being transferred.] so £120,000 PET plus £50,000 gain looks, superficially, correct.

Taxied wrote:

If so, is there another way of doing it, to achieve the same net result between father and daughter but without the CGT charge? 

Suspect not but if you don't know either, you should direct them to someone qualified to advise (based on all the relevant circumstances of both parties).

Thanks (1)
avatar
By Accountant A
21st Aug 2019 20:35

Duplicate

Thanks (1)
Replying to Accountant A:
Psycho
By Wilson Philips
21st Aug 2019 20:39

But only £120,000 is being “given away”

Although the analysis is correct.

Thanks (1)
avatar
By Tax Dragon
22nd Aug 2019 05:53

I can see what you're getting at. MV is (or, potentially, is) charged to (or, more accurately, brought into account for) both IHT and CGT.

Similar apparent double charges are recognised in statute in a number of specific relieving provisions and exemptions, the most well known of which is that disposals on death are exempt from CGT. The IHT charge is given precedence (even if there's no IHT payable).

But lifetime gifts to individuals are specifically exempt from IHT at the point of gift ("Potentially Chargeable Transfers" might be a better description than "PET"). They are therefore chargeable to CGT at that point (of gift), there being no IHT charge to take precedence.

Gains on lifetime gifts that are not (at that point) exempt from IHT are not exempt (from CGT) but can be held over.

Given this last point, it should be no surprise that there's no retrospective CGT exemption if a PET later becomes chargeable - and this could be over 6 years later, after all.

Thanks (1)
Jerome lane stewart and co
By Jerome Lane
23rd Aug 2019 09:11

Your analysis is correct. CGT can be avoided by transferring to a Trust which would be a chargeable lifetime transfer for IHT purposes. A hold over claim can then be made. The downside is ten yearly IHT charges but the upside is ongoing control as the daughter could just sell the property and blow the money! It might be worth thinking about depending on the circumstances.

Thanks (1)
Share this content