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Where Taxpayers and Advisers Meet

Second Home on Death - IHT or CGT

oldjohn41
Posts:12
Joined:Mon Dec 01, 2014 10:50 pm
Second Home on Death - IHT or CGT

Postby oldjohn41 » Sat Feb 24, 2018 10:24 am

We own a holiday home that has appreciated in value during our ownership. We are in our seventies. If the property is inherited by our children when the last of us dies, will they be liable simply for IHT, or would it be CGT then IHT?

AdamS93
Posts:268
Joined:Tue Sep 26, 2017 6:28 pm

Re: Second Home on Death - IHT or CGT

Postby AdamS93 » Sat Feb 24, 2018 11:27 am

CGT is a lifetime tax which means it will only be due in ones lifetime. Therefore, IHT will be due is you transfer it as part of your death estate. If you gift it before death, then there will be CGT issues and potentially IHT issues as well.

You will also need to consider the IHT (equivalent of) implications in the country where the property is situated (if any).

oldjohn41
Posts:12
Joined:Mon Dec 01, 2014 10:50 pm

Re: Second Home on Death - IHT or CGT

Postby oldjohn41 » Sat Feb 24, 2018 12:02 pm

Thank you for that. If we did gift it before death and survived for seven years, am I right in thinking CGT could be delayed by the new owner(s) until they disposed of the property?

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Second Home on Death - IHT or CGT

Postby bd6759 » Sat Feb 24, 2018 12:18 pm

Thank you for that. If we did gift it before death and survived for seven years, am I right in thinking CGT could be delayed by the new owner(s) until they disposed of the property?
No. You will pay CGT on the disposal as if you sold it at market value, and it will remain part of your estate for 7 years.

Lee Young
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Joined:Wed Aug 06, 2008 3:26 pm
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Re: Second Home on Death - IHT or CGT

Postby Lee Young » Mon Feb 26, 2018 9:59 am

CGT could be held over if the gift is via a trust
Lee Young
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner


Partner, Frettens LLP
lyoung@frettens.co.uk
01202 491701

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Second Home on Death - IHT or CGT

Postby bd6759 » Mon Feb 26, 2018 5:29 pm

CGT could be held over if the gift is via a trust
I am sure there are ways around it, but would that not precipitate an immediate charge tio IHT?

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Second Home on Death - IHT or CGT

Postby maths » Mon Feb 26, 2018 9:43 pm

Typically the gift would be to a discretionary trust under which donors could not benefit (otherwise no hold-over relief).

On appointment out to kids hold-over relief again applies.

Depending upon amounts IHT may or may not arise on gift into trust and appointment out. Possible further IHT charges if donors die within 7 years of trust set up and problems also if any PETs were made within 7 years before death and before trust set up.

How much did the property cost and what is its market value today?

AdamS93
Posts:268
Joined:Tue Sep 26, 2017 6:28 pm

Re: Second Home on Death - IHT or CGT

Postby AdamS93 » Mon Feb 26, 2018 10:04 pm

CGT could be held over if the gift is via a trust
Agreed, but this is very short-term solution in my opinion which may or may not suit the OP.

If it is in parents death estate, CGT uplift to value in death estate tax free.

If transferred to trust to avoid CGT, hold-over relief claimed on both entry and exit, the base cost will remain the same and therefore when it does eventually get disposed of you're looking at an even bigger CGT bill.

There will be IHT due on the settlement possibly and if settlor dies within 7 years of gift, there will potentially be no IHT relief either due to loss of NRB and additional charges on death, not to mention IHT principal/exit charges and tax at 45% in the DT.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Second Home on Death - IHT or CGT

Postby maths » Tue Feb 27, 2018 12:53 am

No one is suggesting that transferring via a trust is the answer to the query raised but may be worth considering.

If the donors survive 7 years then the property falls outside their estate for IHT and their nil rate band is re-instated in exchange for possibly no IHT on creation of the trust or CGT charge.

The children could themselves also utilise a trust re hold-over in the future or possibly claim PPR on a future disposal (wiping out any held-over gain).

As always, insufficient facts or numbers to be definitive.


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