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.