IHT Issue?


J

Jeff

Hello

My elderly father-in-law recently raised some cash by selling off a portion
of land attached to his residence to his son. My wife is quite upset about
this since she feels she wasn't fully consulted. My brother-in-law insists
that the land was bought at market value - which may or may not be the case
since it has not got planning consent. However, a quick look around the
local estate agents shows that the consequent loss in value to the estate is
3 or 4 times the price paid.

If I understand correctly, the revenue will base the value of the
transaction on the loss to the estate (if f-in-law dies within 7 years) and
will treat any difference between this and the price paid as a taxable gift
to the son.

My question is - is this analysis correct and if so who will be presented
with the tax bill - the estate or my wife's brother?
Also, how likely is it that this sort of transaction will be brought to
light and whose responsibility will it be to declare it and perform the
necessary valuations?

Many Thanks
Jeff
 
Ad

Advertisements

J

John Boyle

Jeff said:
If I understand correctly, the revenue will base the value of the
transaction on the loss to the estate (if f-in-law dies within 7 years) and
will treat any difference between this and the price paid as a taxable gift
to the son.

My question is - is this analysis correct
Yes. almost. It isnt a 'taxable gift' but a Potentially Exempt Transfer
and will be added back into the estate if the father dies within 7
years. Only the amount in excess of the Threshold for IHT will be
taxable and the amount of tax due on the excess reduces from year 4
onwards.
and if so who will be presented
with the tax bill - the estate or my wife's brother?
The assessed true value less the consideration paid ( = P) will be added
to the estate. If P is greater than the threshold for IHT as at the date
of death then the excess will be taxed and the brother will be liable
but they would chase the estate if they couldnt get the dosh from him.

More importantly though, P is looked at first when assessing the estate
for IHT and uses up the Nil Rate Band first, thereby meaning there is
more tax due on the residual estate than would have been. So if P <= the
Threshold then the brother wont get a bill but the estate will get a
larger one.
Also, how likely is it that this sort of transaction will be brought to
light
It would be an offence not to disclose it.
and whose responsibility will it be to declare it
Whoever applies for probate.
and perform the
necessary valuations?
Ditto.
 
J

Jeff

John Boyle said:
Yes. almost. It isnt a 'taxable gift' but a Potentially Exempt Transfer
and will be added back into the estate if the father dies within 7 years.
Only the amount in excess of the Threshold for IHT will be taxable and the
amount of tax due on the excess reduces from year 4 onwards.

Many thanks for that helpful reply.

Might I ask a follow up.

I think my brother-in-law has in mind to rejoin the land he bought to the
rest of the property (ie house and remaining garden) once the inevitable
happens. Assuming that the property was willed equally to him and his two
sisters (inc my wife) would he be able to able to force his sisters to sell
their 2/3's to him?

Thanks again
Jeff
 
R

Robert

Yes. almost. It isnt a 'taxable gift' but a Potentially Exempt Transfer
and will be added back into the estate if the father dies within 7
years. ...
A few other things to consider:


Are there any CGT implications here? I am thinking not so much of
the soin's ongoing CGT liability if he sells the land, but rather the
father's potential liability. the PPR exemption does not
automatically apply if you sell of a piece of land that was part of
your garden. IIRC if the area is over 0.2 hectare you need to get
agreement from the Inland Revenue.

Also, in general, if there are no dependants, then the father can give
away assets or leave them in his will, to whomever he likes. He does
not have to be 'fair' about it.

There might also be implications if father needs care paid for by the
local authority and he has recently disposed of assets at below market
value.

Robert
 
J

John Boyle

Jeff said:
Might I ask a follow up.

I think my brother-in-law has in mind to rejoin the land he bought to the
rest of the property (ie house and remaining garden) once the inevitable
happens. Assuming that the property was willed equally to him and his two
sisters (inc my wife) would he be able to able to force his sisters to sell
their 2/3's to him?
No.
 
J

Jeff

John Boyle said:
Thanks

Would anyone like to comment on how disagreements in these cases are usually
resolved?
For example, can a sale at market value be forced by any party?

Jeff
 
Ad

Advertisements

J

John Boyle

Jeff said:
Thanks

Would anyone like to comment on how disagreements in these cases are usually
resolved?
For example, can a sale at market value be forced by any party?
Only by going to court and asking to judge to decide.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads

IHT 0
IHT 8
IHT Query 14
IHT for couples 10
IHT Conundrum 11
IHT and PET Question 3
CGT and IHT 10
IHT and CGT 13

Top