Chapter: 2 - Inheritance Tax Mitigation: The Basics

Capital Gains Tax

2.14.2

Lifetime IHT mitigation will in the normal course (except where sterling cash is given) involve what amounts to a disposal for CGT purposes.  The gain in the hands of the transferor will be a chargeable gain computed on normal principles, which, subject to the annual exemption, will attract CGT at up to 28% (since 23 June 2010).  Of course, if either the asset is a qualifying business asset or there is a chargeable transfer for IHT purposes, the gain may be ‘held over’ (under TCGA 1992 s165 or s260): see 3.7.3.  This assumes that the transferee is UK resident.  However, if he becomes non-UK resident within broadly the following six years the held-over gain will crystallise (subject to two qualifications), to be charged first on the transferee and then, if he fails to pay within twelve months, on the transferor (TCGA 1992 s168).  So the CGT impact of any gift must be considered.

TAX TRAP:  Anyone (but especially trustees) making a gift (capital advance) and deferring the gain by electing for hold-over should recognise the possibility of the deferred tax charge failing on him if the donee/beneficiary emigrates and fails to pay the tax within the statutory 12 months after emigration.