H died owning an investment property with W as joint tenants, so passes to wife by survivorship. W wants to gift half of the property away to children. The property was purchased many years ago so sizeable gain as CGT becomes ‘mixed’.
Am I right in assuming if a Deed of Variation is prepared, which is read back for CGT purposes only, it will be treated as if H’s half share passes to children absolutely and therefore, no CGT payable. (The property has not increased in value since death.)
Further, if this is NOT read back for IHT purposes then wife inherits the property for IHT purposes and the TNRB is available on her death. Further, if she survives the gift by seven years then the half share will fall out of her estate.
A deed of variation does not have to be effective for both IHT and CGT.
If the variation only calls on s.62(6) TCGA then, yes, a notional severance would enable the children to acquire at H’s date of death value (under s.62(4)), and be a PET by W. The PET will not affect H’s NRB, so that W’s estate would still be entitled to the same level of TNRB as it would if the variation had not been made.
If any of the children are minors, issues around parent/child settlements will also need to be considered.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Yes; I agree with Paul. The children would effectively inherit 50% of the property as if it had been left to them by H; hence, children take at probate cost for CGT purposes [TCGA 1992 s 62] whether property has increased in value since death or not.
For IHT, if no reading back, W inherits H’s 50% (inter-spouse transfer) and then makes a PET on transfer of inherited 50% to sons. No gift with reservation arises and gift falls out of her estate after seven years.
Even though the property was owned as joint beneficial tenants a deed of variation can redirect the inherited part for IHT and/or CGT purposes.