My client, a husband and wife, have gifted the whole of a jointly (50/50) held rental property to their daughter in one go. Assuming a 10% valuation discount for a 50% interest can be justfied, would the deemed proceeds for CGT for each Spouse be Total value of the property x 45%, or would the 2 transactions need to be aggregated for valuation purposes i.e. Total value x 50% for each spouse? I can't work out whether the rules on linked transactions would apply in this scenario.
Guidance much appreciated.
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I recall looking at this and concluding the 10% (or possibly 15%) joint ownership discount doesn't apply re spouses. I could be wrong and have no time this morning to check.
Fyi see para 48 in the below for future reference re 10% property valuation discount for an undivided share:
"Spouses or civil partners
Spouses or civil partners are separate persons for Capital Gains Tax and their gains are to be computed separately. Where they are joint owners of a piece of land you should ask the Valuation Office Agency to value each of their undivided shares except when the valuation falls within one of the exceptions above."
That is re CGT and so is not conclusive. If this were correct re IHT then it would be an easy way to decrease each spouse's estate by 10% (compared to 100% ownership), so if that's correct why haven't I seen that simple IHT planning step mentioned anywhere (other than Aweb possibly, which is not exactly reliable re tax as we all know).
That is indeed about CGT, which is the tax that the OP is concerned about. Like you, I don't have the time or inclination to check the IHT position.
I do have more time than you. I have had a look at HMRC's guidance, which seems to confirm that the 'simple planning step' would not work - which is presumably why you have seen no mention of it, here or elsewhere.
Thanks for your responses at this busy time. Normally I would park this until February, but with the new residential property CGT return that is not possible. Much appreciated.
Not being an expert here it seems that the gift to daughter is at a value of 90% of Market Value to calculate CGT for parents. Can I assume daughter acquires property at 90% of MV so leaving her with a lower base value?
Yes, I believe she would. In effect she is acquiring 2 separate assets, each at their individual market value.
see para 7.23 et seq, especially 7.24-7.26.
https://www.gov.uk/guidance/capital-gains-and-other-taxes-manual/section-7
But it's much more fun stopping reading when you've seen the answer you want. (And this is Aweb. I have quietly applauded the OP for engaging with this thread and not running away with the first answer. Makes a refreshing change.)
That's an an interesting point, and one that causes me to change my vote. Although I do not necessarily agree with HMRC's stance (I would argue that a CGT valuation involving a hypothetical purchaser and a hypothetical seller should follow the same route regardless of the hypothetical circumstances of disposal) one is likely to face an uphill struggle with the VOA if taking that alternative view.
When we come to sell our BTL I do not expect to discount the price otherwise obtainable by 10% just because we each own one-half, so the VOA approach does make sense. Whether there is any case law to support that, I don't know but in the meantime my vote is now for a non-discounted value.
Agreed. I think para 7.30 concludes the matter as it relates directly to this situation. The disposal proceeds will simply be 50% of total value in each CGT comp (certainly as far as HMRC are concerned anyway). Many thanks for all contributions.
