Inheritance and CGT query

[Ozgirl76]

My parents own a small factory which they would like to pass to me now. Their estate I believe is over the £2 million mark (don’t know, haven’t asked) but definitely over the £1 million as their house is about 900k ish. The factory is worth 200,000 and they bought it 20 years ago for 100,000.
My dad has cancer and is expected to have around 2 years left. My mum is healthy but 79. They own the factory via a company which they have equal shares in.

So my question is - can my dad gift the shares to my mum now, and my mum then gift the shares to me? I’m a bit hazy on the CGT but I think if he gifts his share, that “resets” the value to 220,000 so there is no CGT payable on that first transfer. And because it’s between spouses, there’s no tax anyway.

Then if mum transfers her shares to me, there’s no CGT as there’s no “gain” and I pay inheritance tax if she dies within 7 years.

But have I missed a taxable event earlier?

I am happy to pay CGT and stamp duty because I think that would be lower in any event than any potential IHT.

They have asked their tax accountant but I have to say, I’m not sure her advice is correct in terms of IHT as she has said we should wait until my dad dies, then my mum will inherit the share and then she can pass this to me.

When he transfers the shares to your mum they retain the original base cost so there’s no benefit. The cgt would arise on the transfer to you which would be deemed to be at market value

stamp duty needs to be considered on the shares too

Sadly not. The transfer between spouses is treated as no gain/no loss but essentially your mum would get them at your dads base cost so there would be a gain on them on a gift. Potentially the possibility for gift relief to apply - needs to be a qualifying trade assst and the gain would essentially pass on to you when you sell.

best seek proper advice for this

Oh cool, I hadn’t appreciated that.
So the CGT would be in the region of £18k plus stamp duty.
But if we wait to pass it until my mum dies there could be an IHT bill of 88k based on 40% of the whole value.
So it would still be better to transfer it now even with the CGT and stamp duty.

I would speak to a tax specialist tbh and ensure it’s done properly

Well that’s the problem - they have spoken to one and her advice was to just wait until my dad dies. But I’m not convinced this is the best advice because it puts us on the hook for the big IHT bill in the future. I think their tax person has looked at minimising CGT but not IHT but im not sure how to politely question it without looking both grasping or as if I’m questioning her expertise!

If my parents were to get the best advice on how to pass on their estate while retaining enough for themselves, who is the best expert to talk to? Is it a tax specialist or a lawyer? I might suggest they speak to one and we’ll pay for it for them. So far they’ve just taken advice from the accountant who sorts out their company and personal tax.

I don’t want to seem entitled but equally if there is a way of avoiding a chunk of unnecessary tax then it seems silly not to.

From a tax perspective, it makes no difference your dad gifting to your mum now or waiting til he dies. I don’t see how it would increase the future IHT liability?

No stamp duty on gifts.

If he gifted directly to you, gift relief may apply.

Proper tax advisor or someone who does their tax return? You don’t need a lawyer but you need someone who specialises in advising for inheritance and business continuation etc.

there are certain reliefs you can get etc which they will be able to advise on and be more up to date

So all I was taking into account @AmpleLilacQuail was that if we do this now, it starts the clock ticking on the 7 years whereas if we wait until my dad dies, firstly, we won’t want to be dealing with this straight away and also because my mum will be two years or so older by then.

She just does their tax return. She has done a few more things but basically just that.

I don’t know where you are based but you could ask her to recommend someone? Or go on the Chartered institute of tax to find advisors in your area

That’s a good idea. They’re in Brighton so there should be plenty.

Is it shares or a factory? And what does it do? The gift might qualify for gift holdover relief so no CGT to pay.

Sorry missed it’s a factory in a company. Do your parents rent it out or run a business in the company?

Shouldn’t be any stamp duty on a gift of shares, and the gain might be way more than the gain on the factory as the gain will be on the shares (how much did they pay for those), and anything above £50k (after deducting your usual income) will be taxed at a rate of 24%.

So basically it’s a company that owns a commercial property. My parents then own the shares in the company equally. It’s not a trading company though, it just takes rent for the factory.

Ok so no gift relief (I just edited my last post at the same time you posted this).

How did your parents fund the purchase of the property in the company? And does the company have any other assets (cash etc)?

They bought it cash back in 2001. The company doesn’t have any other assets other than a bit of cash which has built up from the rent, which they haven’t taken to avoid going into the higher rate tax band.

They did spend some money renovating it but I’ve left those details out for simplicity! I know this could reduce the CGT too.

Obviously you should get proper advice on this. I would ask your current accountant to take you through the calculation for two options i.e.1) transfer now 2) transfer in 2 years - you'll have to make some assumptions about how long your parents will live.

Not my area at all, and to get this right I would need to check the rules around the complexities, but I would say that if you transfer now there's a risk you'll pay both CGT and IHT. Although there'll likely be some taper relief.

Thanks @FluffletheMeow I agree there is that risk, but if we wait there is a bigger risk of paying more tax (I think) which is why I’d like to get the ball rolling now.

If we did it now, the taper relief would start in 3 years instead of potentially in 5 or so years and when my mum is already 79 I figure we should get the clock ticking (that sounds so mercenary but hopefully you know what I mean)

I do.

I think it's valid, but something of a judgement call, so definitely worth a conversation with your accountant. Also, it doesn't hurt to ask - a good accountant should be able to take you through the logic and it's a lot of money so you want to be comfortable.

Entirely possible I've missed a tax point somewhere.

Do check OP, but if the factory is part of a business, I believe the shares in the factory would have no IHT due to Business Property Relief

You can claim this relief either in the donor's lifetime or via a Will

www.gov.uk/business-relief-inheritance-tax

But please do confirm with your accountant/lawyer as I am not an tax expert!

Thanks @Rainydayinlondon - I actually hadn’t thought of that. I think that because the company only has the property as an asset, and isn’t a trading company, it isn’t liable for the relief. I assume so that everyone doesn’t just buy properties through a company.

Im not 100% sure on this though, so I’ll check.

@Ozgirl76 Absolutely do NOT rely on me!! ...I just read about BPR when the newpapers were discussing potential IHT changes!

I think your best bet is to ask a firm of accountants/tax advisers who specialise in company law. With an estate that size, it'll be worth the outlay in the long term

And sorry to hear of your father's illness.

Thank you! Yes it does all seem quite complicated, I think I’ll suggest that they speak to a proper expert about this. I don’t mind at all paying our fair share of tax, but I don’t want to pay more than I have to.