CGT vs IHT and GROB

I have a client whose father owned his property in hos sole name. 10+ years ago, he decided to move it into his name 25%, wife’s name 25%, daughter 1’s name 25% and daughter 2’s name 25%.

Father died 2019, wife is now looking to move into a care home.

We declared the property as a GROB on IHT400 in relation to the 50% owned by the daughters as rent was not paid to daughters during father’s lifetime. However, where the property will now be sold, I believe CGT will be payable on the 50% retained by the daughters (they have not lived in the property since they were children). I can see nothing to state otherwise.

I am sure I read previously that this is an anomaly to the IHT vs CGT rule in that the property does not rebase for the daughters and the father’s IHT exemptions are still used up (i.e. it is doubly taxed) but would really like to find the authority for this. Does anybody know or able to confirm?

Christina Spencer
Healys LLP

I think the answers are likely to be found in s.62(1) TCGA1992 and s102(3) FA1986.

s.62(1) TCGA1992

(1) For the purposes of this Act the assets of which a deceased person was competent to dispose—
(a) shall be deemed to be acquired on his death by the personal representatives or other person on whom they devolve for a consideration equal to their market value at the date of the death, but
(b) shall not be deemed to be disposed of by him on his death (whether or not they were the subject of a testamentary disposition).

s102(3) FA1986

(3)If, immediately before the death of the donor, there is any property which, in relation to him, is property subject to a reservation then, to the extent that the property would not, apart from this section, form part of the donor’s estate immediately before his death, that property shall be treated for the purposes of the 1984 Act as property to which he was beneficially entitled immediately before his death.

The CGT uplift applies only to assets that a deceased person was competent to dispose (i.e. forming part of his or her estate) and the uplift applies only for the purposes of TCGA92.

Property subject to a reservation of benefit is treated as forming part of the donor’s taxable estate for the purposes of IHTA84 only.

You would need a specific statutory provision for property subject to a reservation to be deemed to be acquired by PRs on the death of the deceased, at market value at the date of death - there is no such provision, as far as I am aware.

Iain Aitken
Trowers & Hamlins LLP

HMRC’s manual at CG32236 probably says it all.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg32236

Richard Whitaker
LexisNexis

1 Like

Yes that is my understanding too.

Was the property valued at the time the 50% was transferred to daughters? That is of course the acquisition value though presumably the value of the 25% in each case will be further reduced given that it is a share of a property that they own. As there are two daughters you do at least get two lots of the annual CGT allowance. Remember to deduct legal costs and expenses and any money spent on improvements to the home in those ten years.

Deborah Wise

Thank you that is helpful. I do not think that a valuation as at that date was made but we can obtain a retrospective surveyor valuation if need be. The sister’s also have husbands so I will look into whether we can give half of their respective shares to their husbands to further reduce the gain.

You mention about the sister’s 25% shares being reduced given that they do not own the whole property. I understand this applies for IHT (in respect of the shares given away by father for the purposes of the GROB), but was not familiar with such deductions for CGT purposes(?) though usually I would refer to an accountant in any case, i’d be interested to know if there are further deductions for CGT purposes if anyone knows?

Christina Spencer
Healys LLP