Many owners of buy-to-lets are concerned about the IHT cost of keeping them in their estate. There are ways round this problem. One can gift a portion of the beneficial interest and agree with the recipient that the donor can keep all the income (a welcome exemption from the reservation of benefit rules).
However the CGT cost of making such a gift could often be off-putting. One strategy to minimise the cost was to gift a ‘slice’ of the equity each year (ensuring the gain is within the value of that year’s CGT exemption) and repeat the exercise annually until the desired gift had been made. (This will usually involve a series of PETs too, where the value of the gifted slice exceed the IHT annual exemption, but the client will normally take this on the chin.)
I have recently been told (without reasons being given) that this is now risky and frowned upon because it is a ‘series of transactions’. But why? It’s not a case of associated operations, and there is nothing artificial apart from deciding to make a gift over time rather than all at once (but isn’t that what exemptions are for?).
The problem is potentially in S19 TCGA 1992 “Deemed consideration in certain cases where assets disposed of in a series of transactions” which links transactions for 6 years.
s.19 CGTA merely increases the value of the individual elements to a proportion of the value of the whole, if the value would otherwise be less. It does not link them in such a way as to treat it as a disposal of the whole in one tax year, as would be the case if the Furniss v Dawson principle applied.
At the risk of stating the obvious, the IHT and CGT valuation rules are entirely different, coming together only for valuations at death. In simple terms for CGT each slice is valued as a discrete asset, whilst for IHT the 'loss to the estate" can give very different figures, especially the first gift, when the donor’s 100% ownership comes to an end
I am not so comfortable that FA1986 s102A gives the GWR protection anticipated; could this arrangement [ i.e… retention of 100% of the income] constitute a settlement for the purposes of IHTA s43?
On what basis are you so sure the proposals do not constitute “associated operations”? It may be however that no additional IHT turns on the point.
For CGT the valuation point is central to the plan, and s19 &s20 read together can indeed result in recomputation of the values of earlier gifts
If these are pure gifts, and there is no mortgage in place the SDLT rules on a series of transactions will not have any impact.
Have you taken into account annual valuation expenses costs, and the professional costs of arguing these each year with the DV?
Note that if these are residential properties the done will be locked into an additional 3% SDLT on future residential property purchases