Inheritance tax vs CGT

It depends on the size of the rest of his estate.

Option (a) involves paying IHT on the 160k gift (leaving aside some use which can be made of Small Gift exemptions), while option (b) involves IHT on the whole 200k value.

So if the value of the rest of the estate is already more than the threshold, option (a) involves paying 24k more tax than option (b):

a) 40k CGT + 64k IHT, 104k total b) 80k IHT

The same is true if the estate is worth up to 160k less than the threshold. Take example where it's exactly 160k less:

a) 40k CGT + no IHT b) 16k IHT (40% of (200k-160k))

If there is even more spare threshold available, option (a) gets even worse. Suppose the estate is worth 200k less than the threshold:

a) 40k CGT + no IHT b) no IHT

There is no CGT at death.

All gifts made in the last 7 years are included for IHT (with certain allowances and modifications).

Assuming he will be paying IHT on all the investment:

a) CGT (40k) + IHT of 40%x160k, =. 104k tax.

b) No CGT, just IHT of 200*40% = 80k of tax.

Robert

Robert

In message , Ronald Raygun writes

Whilst your total is correct, the way you got there is wrong as is what you have applied the IHT on. Assuming no other Potentially Exempt Transfers then as the gift is less than the Threshold then no IHT will be payable on it at all, but because the gift is added to the estate then it may cause the estate to pay IHT at the mount you have calculated

No it was not wrong. You were probably misled by my simplified wording where I said "involves paying IHT on the gift". Naturally I meant that this would be paid on the value of the gift after it's been added back into the estate. I was calculating the contribution this gift would be making to the IHT liability.

That's technically correct, but because it's irrelevant to the OP's circumstances, it was not necessary to go into this detail. And no, I really hadn't forgotten, I deliberately didn't mention it in order not to confuse.

The distinction is only of relevance to the question of whether, on what, and how much taper is applied under the 7-year rule.

In message , Ronald Raygun writes

Dont try and wiggle out of it!

Of course old bean!

But it wouldnt be paid on the value of the gift. It would be paid on the marginal value of the estate in excess of the threshold, NOT the value of the gift itself. This is an important distinction which, in reverse is especially important in the case of insolvent estates when determining upon whom the liability to IHT falls which may include the beneficiary's of failed PETst.

"It [IHT] would be paid on the marginal value of the estate in excess of the threshold, NOT the value of the gift itself. This is an important distinction which, in reverse is especially important in the case of insolvent estates when determining upon whom the liability to IHT falls which may include the beneficiary's of failed PETst."

It is also important because the 7 year taper applies to the tax on the PETs and not to the PETs thelselves. Since the earliest gifts are taken off the nil band first, the taper has no effect (since the tax is zero until enough PET's have accumuated to rise above the threshold).

However, as Ronald pointed out, this is not of immediate interest to the OP since it does not affect whether he chooses (a) or (b).

Robert

No need, I was never in it.

Whom are *you* calling old?

But the marginal value of the estate in excess of the threshold (or, to be more precise, the difference between the marginal values including and excluding the value if the gift) *is* the value of the gift, as follows from my stated assumption that the rest of the estate already exceeds the threshold.

Yes, of course, but that's not relevant here because I was so bold as to make the tacit assumption that the estate in question would not be insolvent.

In message , Ronald Raygun writes

Hmm, there is a theory that the donee is liable in any event. Let me check.

Now dont let it go to your head...

You accept you are a bean?

Can you count me?

"Peter Saxton" wrote

I count at least two of him!

Ah, Rainer Thonnes - where are you now?