I can’t seem to find an answer to this scenario. H & W owned second property as joint tenants. H died 18 months ago and W wants to gift 80% of second property to son. The gift will give rise to CGT. In the deed of gift I have phrased it as the 50% W inherited from H is being gifted and 30% is from W’s interest in the property to take advantage of the uplift in value on death but do HMRC view it this way? I could draft a Deed of Variation to give £325,000 from H’s share to son but RNRB wouldn’t be available because it wasn’t ever H or W’s residence.
Lynsey
The widow’s base cost will be comprised, in total, her original 50% plus 50% of the uplifted marked value on the death of her husband. Should she gift 80% it will be 80% of the total, not as you have described or would wish it to be.
regards
Maxine
TC Citroen Wells
Another option might be to gift W’s share of the property to son by deed of variation, but only include an election for CGT. The gift would then take effect as a PET by H for IHT, but I think it would have the CGT result you are looking for.
Only H’s share can be the subject of a s. 142 variation. To avoid an IHT charge (presumably otherwise exempt under s18 IHTA if the surviving spouse was a joint tenant in equity) you could limit it to a part interest equal to £325k in value, bearing in mind that related property will only apply in the death estate, albeit exempt, whereas a discounted value will apply to the interest rendered chargeable by the variation and designed to fit within the NRB.
This conundrum bedevilled the appropriation of land to satisfy a NRB legacy left on a DT in the Will of the first spouse to die and still does where that strategy remains viable.
An election for IHT only will mean that the surviving spouse will make a disposal of the deceased’s share for CGT. This will enable the transferee to acquire at current OMV but possibly with a taxable gain for the disponor as PPRR is not available. Is any chargeable gain arising based on the OMV at death likely to be covered by AEA/losses?
The survivor cannot secure s.142 treatment for her own share and heaven knows what would be the legal effect of a document purporting to do so. Hopefully not an unexpected and unwanted outcome but dependent on the drafting. The worst view would be it had no legal effect but that reality might not emerge until much later and too late for it to be remedied.
You could include the survivor’s gift of all or part of her own share in the same document but I suggest it be set out in a separate clause which does not, for heaven’s sake, purport to vary the Will of the deceased. It will then effect a disposal or part disposal of her own share, a PET, and any chargeable gain arising, measured by reference to her own base cost, will be ineligible for hold-over relief.
So Maxine is right as usual but if a s142IHTA/s62(6)TCGA variation is elected for both taxes the survivor will avoid a PET on the deceased’s re-directed share or part and also CGT on any chargeable gain as the son will take at that share’s OMV on death. Surely a wholly unnecessary PET is to be avoided in a situation where the survivor can make a wholly unilateral decision on the particular way to make a gift which she alone, with advice, is in principle minded to make.
She still needs to scope out the future consequences of having her son as a joint owner and the respective equitable interests should be made clear in the documentation: whether TICs or not and if so their resultant percentage shares. They should enter into an agreement dealing with the obviously foreseeable issues, e.g. death or sale, to avoid any future engagement in the expensive TOLATA 1996 lottery with possible accompanying family aggravation.
I have just spotted an error in my previous post, for which I apologise. I got H and W mixed up, which may have caused confusion.
I should have said that if W gives H’s share of the property to son by deed of variation, but includes an election for CGT purposes only, that will be a PET for IHT by W, but should have the desired effect for CGT as per the original post. I would suggest making the variation first, and a separate gift of a further share by W after.
In the original query, there seemed to be some acceptance of the IHT risk associated with a PET, but a desire to take advantage of the tax free uplift for CGT on H’s share of the property.
I agree with Diana. It is important to remember, when varying the tax consequences wrt any asset jointly owned in equity, that in the real world the right of survivorship has already applied, by operation of law outside the Will or intestacy of the deceased, to vest equitable ownership of the asset in the surviving joint tenant(s).
As Diana says it is essential that the variation of the deceased’s taxable but unsevered share be dealt with separately from the gift of the other original share or part of it, even though the entire asset in the real world is wholly owned by the person(s) making the variation.
I do not mind this being done in a single document as long as the drafting is clear but 2 documents signed consecutively will equally avoid the risk of a gap during which something might happen to prevent the second event e. g. donor dies! A presumptive donee not otherwise taking on the death might be at least upset and even litigious.