Inheritance + capital gains tax

[Walkingdeadfangirl]

10-15 years ago (dont know the exact date) my parents in the UK transferred a rental property (worth 200k ish) into my name, it was all done legally with a solicitor and they have an accountant that deals with their taxes. They did it to try and avoid inheritance tax (or so they said).

At the time I was aware of the transfer but thought little of it as they collected/kept all the rent, did all the repairs etc and I had nothing to do with it. I live in a different country.

They have recently become worried that they should have paid 'capital gains tax' on the property when they transferred title to me. Apparently their solicitor never mentioned they should tell the tax man and they never mentioned to their accountant that they had transferred title to me.

They will not seek expert advice (in their 80's and reaching end of life).

So my question is, should I contact the tax man, ask if their is any tax due (& pay it myself). Or wait until they have passed, sell the property and sort out any complications then?

As I understand it by gifting you the property for the purpose of hopefully avoiding inheritance tax they would be liable for capital gains tax on the difference between what they paid and open market value when gifted unless it was their primary residence, which from what you said is not the case so yes, they should have paid CGT.

Something else to consider is that by gifting the property to avoid inheritance tax the receiver (you) become liable to pay stamp duty based on an open market valuaton when gifted. As you live abroad I don't know if that rule applied back then, it does now but I'm not sure when it changed.

As to what to do now is an interesting dilemna. Morals and ethics, where you reside now for tax and what you plan for the future. There is too much to consider to offer an opinon on what you should do other than to say that I think volunteering information due to oversight will be viewed more favourably than HMRC spotting something, viewing it as evasion and coming looking for you.

By keeping all the rental income and doing all repairs it sounds rather like a Gift with Reservation of Benefit. In which case they haven't really given it away and would likely fail to have been put outside of their estate. In which case I'd be more concerned with the potential IHT liability than CGT.

can you find out what the law was on CGT at the time? Get the exact date of transfer etc.

if your parents don't want to deal with it, then I can imagine it's worth dealing with later.

IHT shouldn't apply at that valuation should it?

What Sunseed says is correct - you have not enjoyed the property and they have continued to ‘enjoy’ the rental income although they may not have used it for personal domestic needs. Sounds like a gift with reservation and IHT will apply at 40%.

This does not extinguish the capital gains tax non disclosure because legally the property was transferred to you. When the gift was made CGT would have been due if the value had increased in your parents’ ownership. It can be recovered only up to six years later, but up to 20 years later if there was a fraudulent non disclosure. That sounds unlikely.

There is no stamp duty on a gift unless you took over any outstanding mortgage. Very unlikely.

Where you will end up is the value of the property being treated as still in their estates for inheritance tax meaning there will be some £150k or so tax to pay if it’s doubled in value. This will come out of the rest of the estate in practice, but may reduce your share in what is left (residue).

This is a classic demonstration on how not to make gifts.