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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 6730
Experience:  FCCA FCMA CGMA ACIS
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I am concerned for an elderly friend. A neighbour has

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I am concerned for an elderly friend. A neighbour has obtained planning consent on three adjacent gardens totally 7 acres , 5 acres of which are owned by my friend. My friend was persuaded to split the proceeds of the sale equally between the three (each receiving 2 and 1/3 of the porieeds) I am concerned about the CGT and IHT implications. Seems to me my friend will have to pay CGT on four acres (one acre of gardens are exempt) and their estate IHT (if they die within 7 years) on 'gifting' 2 and 2/3rd of the proceeds to the neighbours.
Am I correct?

Hi, i am one of the experts. I will come back to you little latter, plz bear with me.

Customer: replied 8 days ago.
Will bear with you but it would help to have an idea when I may receive a response?

Sorry for delay, i am stuck somewhere so I opt out now. Hence one of my colleagues at just answer should reply back earlier than me. Good luck

Hello, I am one of the experts on Just Answer and pleased to be able to help you with your question. I see my colleague has opted out.

The plot size is over the permitted area so there will be a liability to Capital Gains Tax (CGT) on any gain made between acquisition of the site and market value on disposal. This will be taxed at 10% or 20% or a combination of the two rates depending on their income including the gain in the tax year of disposal. There is an Annual Exempt Amount (AEA), currently 12K, to offset the gain.

Making a gift creates a Potentially Exempt Transfer (PET) in their Inheritance Tax (IHT) affairs. PETs run off at a taper over 7 years and in the event of a decease within this period are added back to the estate for inclusion in the IHT computation. PETs are the first to suffer IHT and if the estate is insufficient to meet the tax on the PET then the liability cascades down to the beneficiaries for immediate payment. IHT does not kick in until assets on death exceed 325K.

Customer: replied 8 days ago.
Hi, Thanks my concern is that my friends (husband and wife) will be required to pay the CGT on the increase in value of the 5 acres they own notwithstanding they have agreed to transfer the prceeeds of 2 1/3 rd acres to their neighbours, as they are the Title Owners, their estate will also be liable for any IHT should they pass away within 7 years affer the transfer. Am I correct?

You have it to a 'T,' to use an old expression. The IHT danger is the PET as there is no IHT on inter spousal bequests and the PET might catch up with the survivor in the longer term. Always bear in mind Benjamin Franklin's quip that in life there are but two certainties, death and taxes!

The classic defence against this is a short term life insurance policy.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 6730
Experience: FCCA FCMA CGMA ACIS
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