IHT and CGT Planning Question

[Ben]

Yes, in principal that would be a good idea. But what happens later
when the parent owning the business portion of the estate dies. How is
CGT applicable in that instant? I know there is Business Asset Taper
relief for CGT and for IHT there is Business Property Relief, but you
have to remember that these will be pensioners soon and on death they
will not have been trading. Hence partial relief may only be
available.

Incidentlly, does nil rate band cover business assets inherited as
exempt?

 

[Ronald Raygun]

OK OK ...What happpens if Parent transfer the business portion to a
child and the value of that portion of the estate is below the nil
rate band?

I know IHT is not payable as value is below IHT threshold but a gift
is not expempt from CGT.

So what are the CGT implications then ?

If this is a lifetime transfer, the CGT implication is the same as if
the asset had been sold at its market value. The parent would have
to pay tax on the gain (as mitigated by indexation and taper reliefs)
being the difference between the value at time of transfer and when
it was acquired, less any capital injections along the way.

There may exist some kind of "family business" relief.

It may be possible to transfer shares in the company piecewise
year by year, making full use of annual CGT allowances.

 

[Stephen Burke]

OK OK ...What happpens if Parent transfer the business portion to a
child and the value of that portion of the estate is below the nil
rate band?

I know IHT is not payable as value is below IHT threshold but a gift
is not expempt from CGT.

So what are the CGT implications then ?

Gifts are treated as a sale at market value, which will have to be agreed with
the IR - possibly with some difficulty for a private company. It might make
more sense to make a partial gift each year to keep below the CGT threshold.
The parent will also have to consider if they really want to give partial
ownership, maybe even control, of their business away.