Capital Gains Tax and IHT on Gifted Property

[ollie]

Hi. My wife and I want to gift a proportion (60%) of a buy to let property to our children ( property purchased @ £90,000; today’s value £200,000). We understand the CGT implications but are not clear on how the CGT might tie in with IHT if we carry on drinking and depart this world within the 7 years. In other words, would IHT be payable on the whole £200,000, the difference - £110,000, or something else? There is no mortgage. Thanks in advance for any advice. Ollie.

[AGoodman]

For IHT, you'd be making a "transfer of value" of £120,000 - £60,000 each. That's considered potentially exempt but, if one of you died within 7 years, your transfer of £60,000 would be added back into the estate and would reduce your nil rate band by £60,000. There wouldn't be any tax to pay on the death assuming there were no other gifts and the rest of the estate passed to the spouse.

When the second of you died (assuming after 7 years), the nil rate band transferred from the first to die (TNRB) would be reduced proportionately - i.e. if the max nil rate band was still £325,000, only £265,000 would be available to set against the estate on the second death (in addition to the second NRB, the residential nil rate band and transferrable residential nil rate band). Using today's thresholds, that might still leave £940,000 to pass tax free*

*there are other conditions that must be met to qualify for the residential nil rate bands such as the value of the estate being under £2m and the value passing to descendants.