Inheritance tax v Income tax & CGT

Mojisola

John_Pierpoint wrote: »

The law tends to ignore step children if they have not been adopted to create a legal family.

Isn't this the core of the issue? FIL is worried that if his wife inherits the house, she will leave it to her children and leave nothing to her step-son who will have no legal claim on her estate.

ceeforcat

Tricky Dicky - Are you sure? I would have thought that the base cost of the gift is the value at the time of that gift i.e. not NIL?

CGT would be paid by the father based on the value of the gift although in this case PPR seems appropriate.

An example which I have stolen:

It will be as though you gifted the property to your son on the date you move out. This means that the gift will be a potentially exempt transfer. The value of the property is its value at the date the reservation is lifted. If you live for seven years after making the gift, the value will drop out of your estate. If you die before then, it will be chargeable to IHT in the normal way, subject to tapering relief.
For capital gains tax purposes, however, your son will be chargeable to tax on the disposal of the property. His gain will be based on the growth in value of the property from the dates on which he acquired his respective interest. Therefore, he will be taxed on the increase in the value since the gift.

John_Pierpoint

Mojisola wrote: »

Isn't this the core of the issue? FIL is worried that if his wife inherits the house, she will leave it to her children and leave nothing to her step-son who will have no legal claim on her estate.

That is why the husband should leave his second wife a "life interest" in something it is difficult to "waste" (eg a house) and that does not need too much administration from the trustees (probably the executors of the deceased's will).
By the time she dies the children of her first (?) partner are unlikely to still be dependants, so it will pass to the class of persons specified in the original well written will. (As someone has already posted: Think through all the possibilities - even solicitors can get it wrong)
An interest in possession trust helps with the transferable IHT allowance too.

TrickyDicky101

ceeforcat wrote: »

Tricky Dicky - Are you sure? I would have thought that the base cost of the gift is the value at the time of that gift i.e. not NIL?

CGT would be paid by the father based on the value of the gift although in this case PPR seems appropriate.

Yes, you're absolutely right - this is straight from the horse's mouth (HMRC website):
http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm#3

Hence, my previous post should be completely ignored ;-)