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Where Taxpayers and Advisers Meet

CGT - Gifts with Reservation

Posts: 2
Joined: Wed Apr 01, 2020 9:35 pm

CGT - Gifts with Reservation

Postby Sparky74 » Wed Apr 01, 2020 9:51 pm

Hi everyone,
I’m new to this forum so go easy on me 😀
I have a situation whereby I am receiving conflicting advice and I obviously need to be correct to avoid repercussions!
I am a small practitioner, with a very small practice and very basic client base.
I rarely have to deal with any CGT issues, infact this is the first time for about 5 years.
This is the scenario:
Back in 1996 my clients parents gifted their property on a 50:50 basis to their two daughters (one of which is my client). It was agreed that the parents live there rent free (I.e. gifted with reservation).
Father died 2008, and mother died 2019.
The house was then sold by the daughters.
Now, I am happy that inheritance tax has been ruled out (house was included in the death estate because it was parents ppr) and total value under 325k.
However, the way I read it is that CGT WILL be payable on the increase in value between 1996 and 2019.
This is where the problem starts.
My clients sister uses a different accountant, and he says CGT is not due and doesn’t even have to go on the tax return because the property was gifted with reservation.
Obviously the sisters discuss this, and now I’m being questioned (naturally) by my client.
I have trudged the internet to find whatever guidance I can, but I will admit to a small fish like me some of the guidance goes a little deep, especially when I don’t have much experience in this area.
If CGT is not due, Please could someone advise on what basis/why not.
And if it is, does anyone have any suggestion on how I break the news to my client??
Many Thanks in advance for any assistance given.

Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: CGT - Gifts with Reservation

Postby maths » Thu Apr 02, 2020 4:12 pm

There appears to be some confusion between IHT and CGT.

The original gifts by parents to two daughters were gifts with reservation. This means that on the deaths of the parents their original share which was gifted is treated for IHT as part for their estates.

For CGT the position is that each daughter received as a gift a 50% interest in the property in 1996. The base cost of each 50% being market value at that time.
The deaths of the parents had no CGT impact for anyone. On their deaths they did not for CGT own any part of the property even though for IHT they were treated as if they did.

Thus the parents' deaths is irrelevant for CGT.

If and when either daughter now sells their interest (or gift it) a CGT charge will then arise at that time on the appropriate daughter.

The reservation of benefit is an IHT fiction and has no impact for CGT.

Posts: 2
Joined: Wed Apr 01, 2020 9:35 pm

Re: CGT - Gifts with Reservation

Postby Sparky74 » Thu Apr 02, 2020 5:25 pm

Many thanks for the reply. I think I now have my head around it and I am correct in advising my client CGT is due as originally thought.
This will cause family issues with the sister - but to be fair If she ditches me and goes with her sisters accountant the fee lost is worth it if she isn’t going to take my advice and then come back to bite me later with a PII claim!!
Once again, many thanks 👍

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