The client inherited a property from her parents many years ago. She was keen to gift the property to her three children but was worried about having to pay capital gains tax on the gift.
As she had never lived in the property she was not eligible for private residence relief (PRR).
We provided the client with an illustrative calculation of the capital gains tax she would suffer on the gift to her children assuming that no other steps were taken prior to the gift.
Once the level of the tax at stake was quantified we could provide the client with a number of solutions to mitigate the upfront capital gains tax cost including:
- Payment of the capital gains tax by instalments over 10 years,
- Living in the property as her main residence for a period of time prior to the gift so that part of the gain could be exempted through private residence relief,
- Transferring the property into a discretionary trust for the benefit of her three children. The property could either be retained in the trust or the trustees could choose to distribute the property to the children.
The availability of holdover relief for transfers into and out of a discretionary trust meant that it was possible to transfer the property to the three children without incurring an immediate liability to capital gains tax.
A tax saving of over £25,000 as compared to an outright gift.