IHT planning - USERNAME: Casio
Tax Question: IHT Planning Client (doctor retired), aged 81 years, married, UK domicile has approx. net worth of £3million which includes the following: Main Residence - £1.5m
Investment - Business Asset (Doctor surgery) (rented)-£1.0m
Stock & shares - £0.5m. Client has wife, 2 sons (one is a doctor) and 1 daughter and five grandchildren. The business asset is used by one of the son - who is a doctor and is using the surgery to practice from. The client would like to: -gift the surgery to the doctor son. -main residence in equal shares to the other two children but continue to live in it. -gift the shares equally to all 3 children -gift £10k each to all 5 grandchildren. Can you suggest pitfalls, if any from the course of action by client. Can you suggest a better alternative which may save tax overall. Answer: I think your client needs to be careful to minimise both IHT and CGT. Some of the proposed transfers would be potentially exempt transfers and excluded from his estate providing he survives for 7 years. However, the transfer would also be a disposal for CGT purposes. The transfer of the surgery for instance would be a disposal. Gift relief wouldn't be available unless the property was used for the purpose of a trade carried on by your client or a partnership including him. Entrepreneurs Relief wouldn't be available either. Therefore under the worst case scenario, if he was to survive for less than 7 years there would be the CGT charge and the property value would be included in his estate for IHT purposes. If he'd just retained the property in his estate the gain to the date of death would be eliminated. The transfer of the main residence would be likely to be caught by the reservation of benefit provisions if he continued to occupy the property. Therefore it would remain within his estate for IHT purposes but the beneficiaries would not benefit from the uplift in value on death (meaning their CGT charge would be higher on a future disposal). The transfer of the cash would be a good option. Given your clients age he should first look at CGT free transfers to reduce the risk of a double charge to tax (eg cash or raising debt and gifting that).
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