Tax implications on gifting property before death

Tax implications on gifting property before death

This unusual case came to us following the clients’ father passing away. The deceased father had gifted some properties to the children two years before death following advice on signing a retrospective deed of trust. We were asked to check whether the retrospective deed of trust stood for tax law purposes. Having reviewed the case we concluded that advice received was incorrect and the transfers to children were chargeable transfers for capital gains tax purposes. There was a substantial capital gains tax liability on the transfers that had not been reported but was now due on the estate of the deceased father. Unfortunately the father passed away within two years of gifting the properties which meant that these would be included in his estate for inheritance tax purposes at full value and that taper relief would not be available. To make matters even worse, if the children were to sell a property to pay for the late father’s capital gains and inheritance tax, they would first pay capital gains tax on the disposal of the property. A disclosure needed to be made by the executors of the late father’s estate in relation to the unpaid capital gains tax liabilities. There were easy steps that could have been taken to avoid all the tax charges had advice been taken from a specialist tax firm.

Our analysis: This was one of the worst cases of bad tax advice we have seen and we felt very sorry for our clients who were having to suffer the implications. When transferring properties to children or relatives, it is imperative that tax advice is taken from a firm that specializes in tax law and in writing to avoid small and easy to handle issues becoming out of control.

Churchill Tax Advisers Help IHT Planning For Indian Born Clients

This query related to inheritance tax planning and came from an Indian born high net worth individual living in the UK for over 30 years. The client had a substantial estate in India and the inheritance tax position from UK perspective was not clear on these assets. Having researched the issue, we were able to advise that the deemed domiciled rules do not apply for individuals born in India and three other countries. This meant that provided certain conditions are met, there would not be any UK inheritance tax on assets based in India. The interesting part is that there is no inheritance tax in India so effectively (with careful planning), the Indian based assets can be passed to the next generation without any inheritance tax. This particular law is not covered by UK’s tax legislation and the source had to be verified to a double tax treaty with India from almost 60 years ago! This can open doors for tax planning for many wealthy Indian born individuals that have been living in the UK for some time. There are some traps for capital gains tax but once again with careful planning, this can also be avoided.

Churchill Tax Advisers Advise On Structuring For A Large Development

This case came to us from a firm of accountants in London and involved a large property development project. The issues at hand were how to mitigate potential inheritance tax, capital gains tax and income tax implications for the owners. Recent changes in the tax legislation on using structures such as limited liability partnerships created further complexities. We were able to put together a structure, in light of the new legislation, whereby our clients could achieve lower income tax liabilities as well as capital gains tax and flexibility to mitigate potential inheritance tax liabilities. By seeking specialist advice prior to the commencement of the development project our client can have benefits in the short and long term. Had this advice not been taken at this stage, there could have been significant tax implications for making any alterations due to the rise in the value of the property subsequent to the development work.

Capital Gains Tax on Residential Properties from 6 April 2020

From today, 6 April 2020, anybody who sells a residential property in the UK, they will have 30 days to inform and HMRC of the transaction and to pay any money owed. For some this will mean they do not have to register for self-assessment.

Non-UK residents selling both residential and non-residential properties will have 30 days to tell HMRC whether there is any tax to pay or not and you will not be able to defer via self-assessment.

The type of transactions that need to be reported and capital gains tax paid are as follows:

· A property that has not been used as a main home

· A holiday home

· A property let out for people to live in

· A property inherited and not used as a main home.

If taxpayers do not tell HMRC within 30 days of completion they may receive a penalty and pay interest on any money owed.

HMRC will launch a new online service enabling the public to report qualifying property sales and to pay any Capital Gains Tax due.

Should you have any queries please call us at Churchill Tax Advisers, where we will provide answers.

Capital gains tax planning for properties

This client came to us seeking advice on mitigating capital gains tax on a property. We considered the client’s personal and professional circumstances in detail and explored various options allowing for the potential tax liability to be mitigated. We finally developed a strategy using legislation, HMRC’s guidance and extra statutory concessions which if carefully implemented would allow for the majority of the capital gains tax liability to be eliminated.

Our analysis: This was a complex case and required specialist knowledge of the legislation and HMRC guidance on various reliefs and exemptions. Seeking tax advice from a specialist firm may cost a little but the tax savings are very much worth it.

Positive ruling from HMRC on capital gains tax liability

This client came to us on recommendation from East London. The client had transferred a property to their relative as part of an ongoing internal family arrangement. On the face of it, there was a transfer between connected people and therefore subject to a substantial capital gains tax liability. We considered the case and background and found that the person to whom the property was transferred had retained beneficial ownership of the property throughout the period of ownership by the nominee owner and that there was a deemed trust in place. We discussed the idea with our client and applied to HMRC for a ruling that there was no tax to be paid considering the structuring of the ownership. After waiting for approximately 8 weeks, we received a positive ruling from HMRC confirming that our technical analysis of the ownership structure and of deemed trust was correct and therefore no capital gains tax was payable. This was great news for our client as a potentially substantial tax liability was no longer payable in accordance with the tax legislation.

 

Our analysis: This was a complex matter and required in depth specialist knowledge of the tax legislation and legal/ beneficial ownership structures. Whilst a tax specialist will no doubt cost more than an ordinary accountant but can bring much larger savings in tax. In this case the additional fee was a fraction of the tax savings brought for our client.