Capital Gains Tax on a share in property

Land was acquired by H&W in joint names 20 years ago. H has recently died with W inheriting. W wants to transfer half the land to her children. The concern is the gift is treated as a gift of the half share acquired 20 years ago rather than the half share acquired from the H. Thus, giving rise to a substantial CGT liability.

Is there a “first in last out rule”? Does anyone have any thoughts on how we can ensure the Revenue will treat the gift as a gift of H’s share?

Will a Transfer referring to wife’s expectant share from H’s estate executed prior to the issuing of the grant of probate have any impact on the matter?

Ian Partington
Horwood and James

Depending on the IHT position, I believe it is possible to sever the joint tenancy via a deed of variation, and then to specifically gift that half share to the children with the benefit of a full tax free uplift.

Haroon Rashid
I Will Solicitors

I would have thought a deed of variation making the CGT but not the IHT election should be pretty conclusive. I can see the reason for your doubt but if the DoV refers to H’s share in the property, it should be clear.

Absent that (if 2 years have passed), it might be trickier as W would have a blended base cost on receipt. It might still be possible during the administration period as the two equitable shares are still distinct (but I don’t think pre- or post-probate is really relevant).

Andrew Goodman
Osborne Clarke LLP

Will not a deed of variation overcome the issue?

If, for any reason, the IHT benefits of a variation are not desirable, the deed need only be effective for CGT purposes.

Paul Saunders

It appears to me this is the sort of case where a deed of variation could be used, taking advantage of the provisions of section 62(6) TCGA (but not section 142 IHTA).

Paul Davies
Clarke Willmott LLP

There is no first in last out rule.

On inheritance W owns 100% of the beneficial interest at a cost equal to 50% of the original acquisition cost plus 50% of the property’s market value at the date of death ie there is a single base cost for a single asset for CGT.

Assuming the beneficial interests were held as joint tenants then on the death of H, H’s 50% interest ceases to exist and automatically merges into W’s 50% interest; H’s 50% interest does not pass to H’s executors. If held as beneficial tenants in common H’s 50% would pass to H’s executors but, short of a DoV, I can’t see how your objective could be achieved.

As suggested above, a DoV seems to be the answer assuming 2 years since H’s death has not past.

Malcolm Finney

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If the property was held as tenants in common can the widow deal with her late husband’s share by a CGT-only variation before she receives it from the executors?

Terry Jordan

Whilst, technically, a beneficiary cannot make a specific gift of any asset within an estate until it is appropriated to them, such gifts are frequently made by deed of variation and I am not aware that any one has yet pursued the point (successfully or otherwise).

Paul Saunders