Inheritance tax and CGT question

[sunandfog]

If Parent transfers a holiday home to Child they need to pay CGT on the transfer.

If Parent dies within 7 years will the children need to pay Inheritance tax too?

Trying to do the sums on a place probably valued at around £250k if that is relevant. If we collectively will end up 'paying tax twice' then there seems no point in the transfer at this stage?

Thank you

Yes to IHT. Not sure about CGT.

Any financial gift (including a house) over a nominal amount given within 7 years of death are still considered part of the estate for inheritance tax purposes.
This is designed to prevent the deprivation of assets and the same rules apply for assessing finances for care costs

It looks like you can pay IHT even after paying CGT in those circumstances.
https://www.rsmuk.com/insights/tax-voice/inheritance-tax-making-the-most-of-the-basics#:~:text=It%20may%20be%20worth%20suffering,paid%20on%20the%20same%20assets.

What is the value of the entire estate and how long is parent likely to live?

The inheritance tax reduces as time goes on, so for example if the gifter dies 5 years later the IHT is lower than straight away. However this may change in the October budget.

Yes there would be cgt immediately but there are some allowances for this.

As pp have said, it is relevant to consider how long the gifter may live after making the gift.

Falls within the current nil rate band threshold (£325k) so no IHT if they die within seven years. Uses up their transferable allowance though. Also the parent can't continue to benefit from the property after the gift.

CGT will be payable on the gift.

This is not correct. The TAX paid it tapered not the amount of the gift. Assuming there are no other gifts, the property is £250k so under the £325k nil rate band (NRB). Therefore as there is no IHT payable on THIS gift, taper is not available. What it does do is reduce the amount of NRB available on death.

You can deduct annual IHT gift allowance of £3k from the gift if not otherwise used and can carry forward for one year only so £6k, if couple, £6k each so £12k.

in answer to OP question. Yes would pay CGT on gift of holiday property to children. Rate of CGT possibly to be increased in budget. Can deduct fees and certain capital expenditure to reduce gain. Can deduct annual CGT allowance of £3k (each if joint owners).

if die within 7 years, yes there are IHT consequences as uses up part of NRB. Note also that it must be a full gift with no ‘retained benefit’ (such as continued use for free) as would be classed as a ‘gift with reservation of benefit’ and still included in estate even after 7 years.

what is value of whole estate? Potentially up to £1m NRB depending on circumstances and contents of will. If either of a couple has been previously widowed prior to current marriage, if planned properly, it’s possible to get extra NRB.

Thanks all - I should have added that gifts of £325k have been given in the same year so NRB used up.

Parents in 70s but in good health thankfully. They are just doing some financial planning and the budget has spurred them on to think about this cottage.

You should also check the local tax position if the property is located abroad.