IHT and CGT

"stuart noble" actually sold in May 04 for 50K over this figure, and they have asked

I assume that this not merely a mechanism to generate more CGT allowances, and the new beneficiaries get to retain their share of the sale proceeds?

They will retain their share but presumably it is up to them if they want to put it into a joint venture, such as buying a house.

"stuart noble"

Presumably they don't know your circumstances, and you haven't told us how much the estate is worth. If, including house at lower figure, it is below IHT threshold, but would be above it if the higher figure is used, then only part, not all, of the extra £50k would be taxed at 40%. Likewise, for all they know, it might be that the beneficiary is a higher rate taxpayer already, in which case most of the £50k would then be taxed at 40%.

In other words, there do exist cases, and they're probably in the majority, where less tax is paid if the IHT valuation is higher. They were only trying to be helpful.

Yes, but how is the split at present, without a variation? If it just goes to the two sons, there is no point in making a variation to bring in the daughters-in-law, assuming they are in fact married to the sons, since the sons can transfer half their interest to their wives without it counting as a realisation for CGT purposes. That is to say, you'd get the 4 CGT allowances anyway, even without a DoV.

As Doug said, it could get unpleasantly complicated. Don't be so greedy. With 4 CGT allowances already, only £17,200 of the gain is chargeable. If all 4 beneficiaries are standard rate taxpayers, they're only paying £860 in CGT off an extra benefit of £12,500. That's really not too bad at all.

Don't forget that the costs incurred in selling the house come off the gain. So if the estate agent's bill comes to, say, £10k [it'll probably be less, but I've exaggerated for effect], the gain is only £40k, so only £7,200 is taxable, and each beneficiary's CGT bill goes down to £360.

If I may be sexist for a moment, then if the wives are non-taxpayers as a result of being "in their place" [loud wails from the gallery], the total CGT bill is only £360 per couple. I hate to think what the accountant's bill would be for setting up a trust for the grand-daughter. It'd probably eat up most of that.

Well over the threshold, and they know the circumstances only too well.

There isn't a split in the will. Everything goes from father to daughter, so the variation passes it to her sons instead. As I see it this avoids the 7 year rule if she were to pop off prematurely.

Ah! So would putting the money into their joint account be considered as transferring half of it to the wife?

Why ever not? Isn't that the game? They screw every penny out of you and you try to screw some back. They can only say no.

Better than 40% on the lot I agree, but not quite good enough :-)

Yes, that had ocurred to me. Agents fees, clearing the place, and anything else I can think of.

As I see it, if the 2 year old beast has her own bank account, then presumably there is some kind of unwritten trust in operation anyway with the mother acting on the child's behalf. If The Revenue gives children a capital gains allowance, presumably they expect them to use it. Thanks for your response. I thought this one was dead

Ah, you didn't mention the daughter before. So the sons are really grandsons, and the grand-daughter a great-grand-duaghter (of the deceased).

Yes, good idea, assuming she's well enough provided for already.

What money? The sale proceeds? Not quite good enough. A (quarter) share of the house needs to be transferred to each wife *before* the house is sold if you want to use the wives' CGT allowance. Where the money goes after that is irrelevant.

But you don't need to do a full-blown transfer of paper ownership, you merely need to transfer beneficial interest, which can be done by informal declaration.

That's it. And, for my sins, I am the ex-husband of said daughter in case you wondered :-)

So, as the house has already been sold by the daughter, the only way to get

4 CGT allowances is to split it 4 ways by DOV? If we split it 2 ways the sons cannot use their wives' CGT allowance?

Unless the monies arrive back in (say) a single individual's bank account.

True. But I always recommend that an Oral Declaration of Trust be evidenced by a written memorandum and lodged with the family solicitor. Not solely for tax purposes, but to avoid legal dispute if the new beneficiary(s) differ from the testamentary ones. And to confirm that the intended objective has been achieved.

And quite possibly even the father of the grandsons, looking after their best interests? Jolly good.

I guess so. Certainly if a DOV is necessary anyway, it shouldn't be any more trouble to make it go 4 ways than 2. The question remains, though, that as the gain has been realised already, whether its taxation can be retrospectively reversed by the DOV, and the fiction assumed that the daughter was in fact selling it on behalf of the 4, and not on her own behalf. Wait a minute! She could have sold partly on her own behalf too, this is where a 5th allowance could come from, have the DOV create a 5-way split (daughter, grandsons and their wives) or, if you really must, 6 ways (by adding in the greatgranddaughter). Daughter could subsequently gift her share of the proceeds to the rest of the clan.

This is where you would gamble. If you include the daughter in a

5 way split, you gain an extra CGT exemption, but risk the gift becoming liable for IHT. If you exclude her, you eliminate the IHT risk, but certainly lose the CGT allowance.

I hope the fact it's already been sold doesn't block the possibility of getting a DOV. That would be really embarrassing and would mean that you'd not only be limited to one CGT allowance (the daughter's) but also that the entire sale proceeds, if she gifts them to the clan, become at risk of IHT upon her death.

Does that really matter? Who's to say that money in one person's account isn't in part beneficially someone else's?

I believe it does. Why run the risk/hassle of having to demonstrate some other individual's beneficial interest?

I had this very problem with the IR a few years ago when a new client came to me because the IR had launched an enquiry into her deposit account interest.

A DOV can still be executed even though the asset has been sold by the original beneficiary.

Yep. Maybe they'll take pity on me when I'm old and feeble (as opposed to just feeble)

Sounds like Doug has answered that. It wouldn't be a very logical system otherwise.

The greatgranddaughter if it's not too complicated. We're going to see what the implications are of a bank account in her name and what powers the mother would have. I'm sure that must constitute a trust of some kind, and a free one at that.

I suppose life assurance would cover that possibility. Interesting that this type of policy seems to reduce over the 7 year period, whereas someone on here was explaining why the whole sum had to be covered for the full period. There's also the option of using MY allowance but ex wife's eyes glaze over at this point :-) Thanks for your interest.