We are still in the administration of an estate. Various investments which have not yet been cashed in or transferred have made significant gains.
The persons benefitting under the will wish to pass some of the inheritance on to their children in any event . I seem to think that under the DOV a disposal does not occur for CGT purposes. Would the DOV have to leave a specific investment or share of to a beneficiary.
I’m assuming that as soon as I en-cash the investments then we have a gain and as PRs would need to report to HMRC
Provided the variation includes a declaration that s.62(6) Taxation of Chargeable Gains Act 1992 applies to the dispositions effected by the variation, there should be no disposal for CGT purposes.
It is up to the original beneficiary(s) what they give to their children – whether a cash sum, specific assets, or a proportion of the estate.
If any of the children are minors, the income on their entitlement may still be subject to tax as income of the parent during the minority.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Following on from Paul’s post, it is sometimes preferable for no reading back to be claimed for CGT purposes in particular if the relevant asset has increased in value from its probate value (ie at death).
For example, asset value at death 100,000. At date of DoV asset worth 112,000. Under DoV no reading back for CGT and so recipient under the DoV acquires the asset at its then market value (112,000) and original beneficiary has made a CGT disposal for 112,000 giving rise to gain of 12,000 which falls within the transferor’s annual exempt amount.
We have a potential liability of up to £50,000 of Capital Gains Tax . Is there something you could point me to to understand how much they would need to gift to adult children to so as to not pay the capital gains tax.
The only way that the investments inherited by the parents could be passed on to the children without a CGT charge is for the parents to execute DoVs in favour of the children and read-back for CGT purposes. No CGT charge arises, but the £50k inherent CG is effectively passed on to the children ie if they sell the investments the £50k any CGT charge falls on them.
If there is no CGT reading back, the £50k CG arises at the dates of execution of any D0Vs by the parents and is their liability (only two annual exempt amounts available ie £24,600).
If the shares are to be held by the children for sometime it may be better to elect for reading-back which at least avoids precipitating any CGT charge immediately. If the investments are to be sold then it could be more CGT efficient for no reading -back assuming that there are four or more children who on sale have a total of four lots of £12,300 annual exempt amounts, ie £49,200, which covers the £50k CG.
An accountant that has spoken to one of the family has suggested the following:
"put the assets with gains into a bare trust in the names of the residuary beneficiaries. Then the residuary beneficiary demands the trust transfers your share to them.
you need to make sure if you want to do a Deed of Variation that you also sign a Deed of Assignment of any bonds to the beneficiaries first from the estate before encashment so they can use their own allowances rather than the estates. If not a bond and shares that you do a Deed of Appropriation before disposal.
If a beneficiary is married they could also consider a gift to their spouse so they can use their CGT allowance too before disposal of the holdings.