IHT and CGT Planning Question

If the estate is wholly owned by the donor, he should gift half of it to the wife. If they already own it jointly, any joint tenancy should be severed so that they each own half (in common, as opposed to both own all of it together). Then they should each will their share independently directly to the children.

No CGT since transfers between spouses are exempt. No IHT since each half-estate is below the threshold. No need to bother with all the tapering nonsense or any of the other subtle stuff.

Or do nothing at all now and a Deed of Family Arrangement when/if relevant.

Yes, in principal that would be a good idea. But what happens later when the parent owning the business portion of the estate dies. How is CGT applicable in that instant? I know there is Business Asset Taper relief for CGT and for IHT there is Business Property Relief, but you have to remember that these will be pensioners soon and on death they will not have been trading. Hence partial relief may only be available.

Incidentlly, does nil rate band cover business assets inherited as exempt?

But they have to trust the children, otherwise they could force a sale to get cash for their half of the property.

Fair enough, and they would have to trust each other too. But would the children not be shooting themselves in foot by forcing a sale to get half the cash if that meant they would lose the other half? I know a bird in the hand is worth two in the bush, but isn't a bird in the cage and one in the bush worth more than one in the hand and the other gone forever? The betrayed surving spouse would, after all, change his/her will and divert the other half to the RNLI.

Besides, can this problem not be avoided with trusts?

Yes, so leave the property directly to the survivor against a debt to a trust the ultimate beneficiaries of whom are the kids.

In message , Ronald Raygun writes

No, but it can be lessened unless the property never goes in the trust at all, see my other reply.

If this is a lifetime transfer, the CGT implication is the same as if the asset had been sold at its market value. The parent would have to pay tax on the gain (as mitigated by indexation and taper reliefs) being the difference between the value at time of transfer and when it was acquired, less any capital injections along the way.

There may exist some kind of "family business" relief.

It may be possible to transfer shares in the company piecewise year by year, making full use of annual CGT allowances.

Gifts are treated as a sale at market value, which will have to be agreed with the IR - possibly with some difficulty for a private company. It might make more sense to make a partial gift each year to keep below the CGT threshold. The parent will also have to consider if they really want to give partial ownership, maybe even control, of their business away.