I am dealing with a case where the deceased owned a 1/2 share of his home and the other half was owned by his daughter who resided with him.
Under the terms of his Will he gave his daughter a life interest in his share. It is coming up to the second anniversary of his death and his daughter now wants to execute a deed of variation under which she will give up her life interest with the result that the remainder beneficiaries, which include exempt and nonexempt beneficiaries, will become entitled to share in the proceeds of sale as the property is to be sold by the daughter and the trustees, of which she is one, as the property has already been vested in them. The DOV will contain a provision to the effect that the clause in the Will giving the life interest shall be replaced with a clause giving the share in the property to the remainder beneficiaries.
Whilst I do not know whether the sale will result in a capital gain, which will be liable to tax, if it does and the sale takes place before the DOV is executed, principal private residence exemption would presumably apply. However what is the position if the sale took place after the deed is executed?
Reading back for CGT via DOV seems to make the gain chargeable if remaindermen did not reside unless no CGT election is made. IHT reading back could avoid 7 year survival on a PET of share either of house or sale proceeds and GROB risk.
It is necessary to consider “reading back” under s142 for IHT and CGT purposes. It’s not necessary for both IHT and CGT or either to be read-back.
For CGT, whether reading back is the better option will spend upon the figures involved. Reading back results in the remainder beneficiaries acquiring their respective interests at the MV at date of death and subject to CGT charges on sale as s 225 will not apply (assuming beneficiaries did not reside in the property) albeit with more than one annual exempt amount to mitigate any such charges.
If no reading back daughter avoids a CGT charge due to s225 and remainder beneficiaries acquire their respective interests at MV at date of execution of DoV presumably giving rise to higher base costs and lower CGT charges on sale.
No reading-back for CGT thus seems the better option.
For IHT, reading-back avoids daughter making a PET and also getting caught under reservation of benefit rules.
Thank you Jack and Malcolm for reminding me not to include the election for CGT. It’s a trap one could easily fall into.