CGT Mitigation on Gift of Land

H owns some land in sole name held for some time so sizeable gain. H wants to gift it to his son. If H gifts half to his wife (W) then they make a joint gift to H soon after, would that fall foul of any tax evasion-avoidance issues? Are there any other issues to consider?

Could the transfer to the son be done in two instalments spanning two tax years but done quickly? e.g. March then April. If so, is the value of the first disposal/transfer for CGT valued on the principle of ‘loss’ the same as it is for calculating lifetime gifts and loss to an estate?

Would a Declaration of Trust between H & W be sufficient or formally through HMLR before transfer(s) to son?

Many thanks in advance

Karl Taylor
Parker Rhodes Hickmotts

Dear Karl,

Transfer between H&W are exempt for CGT and IHT so there would be no issue making a gift. I won’t comment on DoT (not a lawyer).

Gifting to son would then be a chargeable event for CGT purposes. H&W would have original base cost. As it is land, any disposal not a full disposal, would be calculated using the part disposal rules. (A/A+B) and this would require a valuation of the part retained to be done.

There is no reason why it can’t be split across two tax years.

None of these transactions fall foul of avoidance, just common sense.

Please be aware, not knowing the figures, that there are press comments about CGT being increased/doubled so it may be worth taking that in to consideration as it is possible this ‘could’ be introduced from 6 April 2021.

Lucy Orrow CTA TEP
Lambert Chapman LLP

Typically, inter spouse transfers to mitigate tax do not seem to fall foul of any provisions.

The key is to be in a position to demonstrate that W is free to do whatever she wants with the transferred interest to her from H. In other words, there must be no transfer from H to W conditional on (or understanding) that she will then gift to son.

Ideally, the longer the time period from H gifting to W and then W gifting to son, if she does, the better. H and W could gift at different times and in different amounts to son.

A declaration of trust should be satisfactory but it may be better for legal title to be held by both H and W followed by a declaration of trust.

Where an asset is transferred in separate tranches over a number of tax years for CGT the “loss” principle is inapplicable. TCGA 1992 section 19 (asset disposed of in a series of transactions), however, is likely to be in point. The section requires a few convoluted calculations each time a tranche is disposed of. The section’s purpose is to prevent a valuable asset being disposed of piecemeal to a recipient to reduce values and mitigate the resultant CGT charge.

Malcolm Finney

Thank you both for replies as these confirm my thinking.

I am aware of this week’s press reports on CGT and will be relaying to this to my client.

In respect of the CGT, even though a gift, does the recently introduced 30 day settlement still apply? From what I’ve read it looks like it does but clarification will be gratefully received.

Karl Taylor
Parker Rhodes Hickmotts

If the gift to the wife is made in anticipation of her passing it on to the son, as is stated to be the intention, it seems to me that s.268 IHTA 1984 may well apply (Associated Transactions). If it does apply, then HMRC would look through the wife’s involvement and “her” gift to the son would be treated as a gift by the husband. The time scale does not matter as it is the intention at the time of the husband’s gift to the wife that I understand is the connecting factor making the transactions “associated”.

If a professional is recommending such an arrangement, I suspect they could be in breach of their obligations under the Professional Conduct in Relation to Taxation.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Para 3 of Sch 2 FA 2019 requires a return to be made following a direct disposal of UK land (para 1(1)(a)) albeit subject to para 3(3)(a) which refers to para 4 under which no return is required if a residential property gain accrues if no payment on account is required as prescribed in para 6. Para 6 requires an amount of CGT to be notionally chargeable as computed under para 7. Para 7 states that the notional chargeable amount is the amount of CGT which the person would be liable.

So, yes re gifts to son.

Malcolm Finney

A disposal of UK residential property by way of gift to the son certainly falls within the 30-day reporting requirement if there is a tax liability.

Ray Magill

Paul, if no condition or series of ‘operations’ are attached to H’s gift, would it still fall foul of section 268?

Would that not be part of estate and IHT planning?

Liora Torn-Hibler
Berlad Graham LLP

Brevity can be the enemy of accuracy

1 The gift by H to W must transfer beneficial ownership and unfettered freedom to dispose of the half share. As this essential validity is a point of law a statement of that objective by the parties is not conclusive but desirable (and not just in an adviser’s letter).

2 Section 268 can determine whether a transfer of value has occurred at all but here its key function is to identify the transferor for IHT purposes of W’s share to S.

As a dinosaur I prefer to be taxed by law not untaxed by Manual but IHTM 14833 is potentially helpful and refers to a Ministerial statement for support.

There are two doubts:

(a) the word “unconditionally”. This does not mean only a gift conditional in law. It indicates HMRC’s acceptance that what they call the “subjective test” in subsection (1) (b) does not apply to a set of given facts. The use of the shorthand “intention” is unfortunate. It would be absurd for HMRC to be addressing only the unlikely situation where the gift to the “third party” (S here) was unexpected and fortuitous. It must cover a situation in which H is aware, expecting, “intending” and even hoping that the W-S gift may be made. H should have no involvement in that gift.

(b) there is a vague caveat about “a more complex series of transactions” so ideally both gifts will be plain vanilla

In order to open a credible future JR argument H should confirm in writing ahead of the gift that he is aware of IHTM14833 and relies on it.

3 The Manual statement pre-dates the GAAR. It would surprise me if the arrangements were ultimately found to be “abusive” as defined in s 207 FA 2013, though they are not "approved " by an example in Guidance Part D. Under s211 (3) it would be admissible at discretion.

4 The PCRT must be considered as its authors have the power to deprive us of our livelihood. Paragraph 3.2 concerns “advising on tax planning arrangements”. It is plainly in terrorem. The SRA in its Warning Notice about duty and tax avoidance endorses it, though the Law Society does not unless a solicitor is also a member of a PCRT body.

Both pronouncements have been expertly critiqued by Michael Blackwell at 1 BTR 2019 as being contrary to the rule of law; insofar as they ordain selective denial of the right to legal advice, a branch of the same tree of justice as legal advice privilege.

I do not accept that paragraphs 1-3 above offend against these dubious and intimidatory exhortations to irrefutable virtue.

5 I acknowledge a solemn professional duty of integrity, to the public and in my dealings with HMRC; and an obligation to avoid its subornation by my other solemn duty to my client. I do not accept an overriding nebulous duty to a disembodied Tax System, requiring me to triage metaphysically my client’s proposed activities, though lawful inclusive of the GAAR. It is not the GDR.

That system can be a monster as the two Lobler cases show. The taxpayer’s apparently logical and straightforward action caused a tax disaster, which had to be rescued by the UT pulling the exotic remedy of rectification out of a hat, and the later specific change in the law out of shame speaks volumes. I believe he would have been entitled to be advised of that outcome and, more to the point, on any available means within the law inclusive of the GAAR to avoid it.

An adviser is free, subject to equality law and the cab rank (for some), to reflect their distaste for tax avoidance (which Blackwell avowedly shares) by framing an exclusion in their retainer/letter of engagement. If very many do Blackwell’s theorem on the rule of law will be QED.

Jack Harper

Since my posting I was kindly referred to IHTM 14833 (, in which HMRC sets out its own interpretation of s.268 IHTA:

Where property given unconditionally by one spouse or civil partner to the other is subsequently transferred by the latter to a third party, you cannot use the associated operations provisions to attribute the transfer to the first spouse or civil partner.

The Chief Secretary to the Treasury assured Parliament that this would be HMRC’s practice, and it was publicised in a Press Release dated 8 April 1975.

However, where the transfer between spouses or civil partners is part of a more complex series of transactions which taken together are the way one of them makes a disposition to a third party, it may be more appropriate to use the associated operations to allocate the transfer(s) to the correct transferor.

Where a gift truly is “unconditional” s.268 cannot bite.

However, it is not unusual for there to be a discussion, such as that referred to in the initial posting, and for clients to “require” the advisor to commit their thoughts to writing, for whatever reason. Once there is a record of what might have been suggested, the advisor may be in a difficult position unless they reinforce the need that any gift between spouses/civil partners must be unconditional (but even then HMRC might argue that to be merely a “smoke screen”). Once the box is opened, it cannot easily be closed!

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals