Capital Gains Tax - gift

holly_hobby

CLAPTON wrote: »

I see no benefit in a DOV as transferring shares ownership has to be done anyway and there are in general no IHT benefits: depending upon the future may have negative financial impact

Really ... thats a really interesting view point, but not one I share ...

Given that any bequest from Mums estate who is already deceased (be that via actual nomination or DOV) raises no IHT issues, given that we actually KNOW that her net estate (inc non-exempt gifts) at 250k is well below the nil rate IHT threshold -

why one would instead elect to have Dad, who's still alive and whose net estate on death is currently UNKNOWN( inc as you point out the fact there may the value of his residence to include), to instead gift the shares from HIS estate, which will become PETs, and may cause IHT issues depending on the actual net value of his estate on death within the 7 yr clock - a tad exposed, given he make be lucky and his lottery numbers come up in the meantime swelling his net estate value !

I'm sorry but I really don't see the logic in it - and that is certainly where a future negative financial impact would come from (re any IHT exposure as a result of increase to Dads net estate exceeding available rate IHT exemptions - inc any usused spousal tsf), but not from tsf of shares from (deceased) Mums actual net estate under a DOV (which as we know is neither being exercised to avoid or mitigate any CGT or IHT liability).

Hope this helps

Holly

CLAPTON

mum' estate has a IHT allowance of 325,000 on death

dad' estate on death has an IHT allowance of 325,000

if mum leave everything to dad then dad's estate today has an IHT allowance of 650,000

now if mum gives say 81,250 away in her will to some-one other than her spouse (i.e 25%) then the spouse has only 75% of her IHT allowance passed to him

If a DOV is called out then that has the same effect

so if DOV of 81,250 the surviving spouse has 325,000 + 243,750 IHT allowance on death


now

1. if mum gets the full allowance from dad and gives the 81,250
then her estate has IHT allowance of 650,000 still but with a PET of 81250

so if she survives for 7 years the beneficiaries are better off

if she doesn't then they are no worse off


2. now although we don't know the future it's very very very unlikely that the IHT allowance will be reduced but here is a fair possibility that it may be increased

so the transfer of allowance is a percentage and not the actual amount them the estate is overall worse off if there is an increase in the IHT allowance


so DOV is in most circumstances a bad idea with no good points and several bad points

holly_hobby

CLAPTON wrote: »

mum' estate has a IHT allowance of 325,000 on death

Mum's allowance is indeed 325k, but that isn't what she had available at death.

CLAPTON wrote: »

dad' estate on death has an IHT allowance of 325,000

Correct again at current rates, and if there are no non-exempt lifetime gifts made.

CLAPTON wrote: »

if mum leave everything to dad then dad's estate today has an IHT allowance of 650,000

No unforunately thats not the case - refer below.

Mum has already utilised 120k of her nil rate allowance in respect of non-exempt gifts

OldBeanz wrote: »

Mother's total estate was circa £250k including £120k she gave my tbro and myself last year.

- which means the 120k is a non-exmept lifetime tsf, its value firmly remains within the estate valuation - so there is actually only £205k physically remaining of her nil rate band remaining at death (which translates under transition to an available spousal tsf of 63.0769% equal to £204,999.92.)

CLAPTON wrote: »

now if mum gives say 81,250 away in her will to some-one other than her spouse (i.e 25%) then the spouse has only 75% of her IHT allowance passed to him

Partially correct ( as illustrated above), as it currently stands, Dad's estate can only actually benefit from 63.0769% of her nil rate band in any event, based on current exemptions.

CLAPTON wrote: »

If a DOV is called out then that has the same effect

Absolutely - as previously discussed in respect of when HMRC catagorise point of acquisition, in respect of determining acquisition value for any later CGT exercise.

CLAPTON wrote: »

so if DOV of 81,250 the surviving spouse has 325,000 + 243,750 IHT allowance on death

Not quite, as dicussed, Mum has already used 120k of her available 325k nil rate band, in non-exempt lifetime transfers.

This means as noted above, that pre any DOV exercise - there is actually only currently £204,999.92, available for tsf to Dads estate on death - meaning that if we only deduct the current 120k non-exempt tsf (with the shares tsfd to Dad for him to then pass on as a PET to his children), he only has a £529,999.92 nil rate band available (if executors are mindful to apply for tsf on his death of course), but his estate will have a PET hanging over it for £81,250 from point of his tsf - leaving a potential nil rate net allowance (based on current exemptions that apply up to at least 2019) of £448,749.92.

Now ...

Again, working on the above figs, if we again take the current known non-exempt tsf of 120k but now also include the value of the DOV, again using your specimen fig of £81,250 - this equates to a remaining nil rate balance of Mums exemption of (38.0769%) for utilisation by Dads estate. Meaning his estate will have a total nil rate allowance of £448,749.92 (figs correct upto April 2019) - however with no non-exempt transfers hanging over it.

Now, initially from my calcs we do have parity here, so based on that (and current rates) I do agree (having looked more closely at the figs) that taking a punt via Dad as PETs, may be more advantagous (given his survival os of the 7 y r ), and that if he dies within the term, given the figs, there's been no IHT disadvantage.

CLAPTON wrote: »

now

1. if mum gets the full allowance from dad and gives the 81,250
then her estate has IHT allowance of 650,000 still but with a PET of 81250

so if she survives for 7 years the beneficiaries are better off

if she doesn't then they are no worse off

Dad doesn't have 650k available - refer above. But looking at the figs in question, I do agree on the underlying principle.

But for clarity of the reader Mum has already died, its Dad whom is the survivor .

To which Dads estate on death, even without a DOV, can't utilise Mums full IHT nil rate band allowance, as there were already non-exempt tsfs of 120k at her point of death.

CLAPTON wrote: »

2. now although we don't know the future it's very very very unlikely that the IHT allowance will be reduced but here is a fair possibility that it may be increased

However we do, as under current directions there will be no future nil rate band increases at any point before at least April 2019, meaning the IHT nil rate band has been effectively frozen at 325k pp up right until this point and possibly beyond.

Hope this helps

Holly

CLAPTON

My point is that a DOV is not a good idea: at best is gives the same result as just making a gift and at worse the beneficiaries will pay more tax.

zygurat789

holly_hobby wrote: »

However we do, as under current directions there will be no future nil rate band increases at any point before 2019, meaning the IHT nil rate band has been effectively frozen at 325k pp up right until this point.



Holly

You may well be right BUT we do NOT KNOW this.
It may have been announced by the Chancellor but
1. There is an election between now and then.
2. He may not be chancellor from now to 2019.
3. He has been known to "change his mind" before usually to increase some pre announced item and usually to the benefit of taxpayers.

holly_hobby

zygurat789 wrote: »

You may well be right BUT we do NOT KNOW this.
It may have been announced by the Chancellor but
1. There is an election between now and then.
2. He may not be chancellor from now to 2019.
3. He has been known to "change his mind" before usually to increase some pre announced item and usually to the benefit of taxpayers.

Absolutely ...

Although its been announced and at time of writing IS scheduled to be in effect, it being essentially designed to assist funding the introduced care home fees cap, so a change to this would mean the funding has to be found from another pot during the same period, and I can't see a rise in IT being the easier accepted route to go down.

Although to be crystal, I did actually say under current directions which ARE all but in place to be fair ...... but you'll accept that the above list where it may not take effect, ranging from "they may not be in office" to "he may change his mind", an awful lot of "what ifs" and "maybe's" and a tad too wolley to base any factual or reasonable IHT guidance on ....;) (but here's hoping that the nil rate does increase sooner than 2019, as its stagnation encompasses and penalises far more peeps then the gov's current claims ....

Hope this helps

Holly x

PS - HMRC ref for guidance - http://www.hmrc.gov.uk/budget2013/tiin-1260.pdf

zygurat789

holly_hobby wrote: »

Its been announced and at time of writing is scheduled to be in effect, it being designed to assist funding the care homes cap, so a change to this, would mean the money has to be found elsewhere, and I can't see a rise in IT being the easier accepted route to go down.

Although to be fair, I did actually make it clear to say under current directions which ARE all but in place ...... but you'll accept that the list is also an awful lot of "what ifs" and "maybe's" and far too wolley to base any current or factual IHT guidance on ....;) (but here's hoping that the nil rate does increase sooner than 2019, as its stagnation encompasses and penalises far more peeps then the gov's current claims ....

Hope this helps

Holly x

But, coming at the end of such a long and authoritative post and being emboldened it did look as if it was gospel, whereas we all know that Gideon would love to increase these limits, and UKIP would almost certainly do so, as soon as the economy improves. After all they did promise to increase it to £1m before they conned people into voting for them.
Even after the autumn statement or a budget speech the provisions can be amended right up to the time of Royal Assent.

holly_hobby

Well it is essentially isn't it .... given what they're using it for and the announcement that it will be implemented ... and unless as you suggested earlier the gov is either voted out, labour come in and reverse it, and/or the gov or Osbourne changes his mind (yet again) .... whilst finding another source for the 75k CHFC, the announced freeze is unlikely to be revoked.

Problem is, unfortunately a tax adviser can only base advice on today and scheduled taxation regs, and not on a crystal ball on what may happen or be optimistic that announced unfavourable changes will be revoked or not implemented etc, all whilst hoping for a fair wind and a goverment change of heart, or ousted and the new gov reversing it (as I'm not expecting UKIP to hold any majority TBH). Because if they did, and things didn't transpire as suggested, well there'd be an awful lot of egg on faces and some hefty indemnity claims to boot ....

So as we speak the IHT nil rate band is frozen at 325k until at least April 2019 - and thats what you would base any guidance on (with any increase during that period a v welcome bonus, but not something that can be gted, so advice can't be based around such an event possibly occuring).

But look, its really not worth getting into a pow wow about, OP has recd some good advice, and its now upto them to take things forward with their own tax adviser ......

Hope this helps

Holly