IHT
Posted: December 15th, 2021, 9:08 pm
You have an asset, probably a house, you sell it to your kids for ten quid, I assume you cannot, but can you to avoid IHT?
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One problem is that you will be treated as having gifted the value to the children , and will have to pay CGT on the basis that you received the full value of the house ( less the £10 ) minus its original cost. You'll still get pinged for IHT on the gift if you die within 7 years. So not the best move.Moosehoosenew wrote:You have an asset, probably a house, you sell it to your kids for ten quid, I assume you cannot, but can you to avoid IHT?
Agree it won't work as suggested. But selling a house for £10 is going to scream that something odd is going on. But what if someone sells a London home for maybe £100,000 less than it is worth? Then there is a good chance that nobody will notice or challenge that, and it will save £40,000 in IHT potentially. Plus some savings in stamp duty for the buyer.genou wrote:One problem is that you will be treated as having gifted the value to the children , and will have to pay CGT on the basis that you received the full value of the house ( less the £10) minus its original cost. You'll still get pinged for IHT on the gift if you die within 7 years. So not the best move.Moosehoosenew wrote:You have an asset, probably a house, you sell it to your kids for ten quid, I assume you cannot, but can you to avoid IHT?
But ex hypothesi the transaction is with a connected person. In which case you are required to replace the price actually paid with the true market value. So you'd be submitting a false return, which may not end well.Lootman wrote:But selling a house for £10 is going to scream that something odd is going on. But what if someone sells a London home for maybe £100,000 less than it is worth? Then there is a good chance that nobody will notice or challenge that, and it will save £40,000 in IHT potentially. Plus some savings in stamp duty for the buyer.
Technically it would not be a tax return that would be "false" in that case but rather an IHT declaration later on if the donor dies within 7 years.genou wrote:But ex hypothesi the transaction is with a connected person. In which case you are required to replace the price actually paid with the true market value. So you'd be submitting a false return, which may not end well.Lootman wrote:But selling a house for £10 is going to scream that something odd is going on. But what if someone sells a London home for maybe £100,000 less than it is worth? Then there is a good chance that nobody will notice or challenge that, and it will save £40,000 in IHT potentially. Plus some savings in stamp duty for the buyer.
The numbers involved in the house sale would generate a requirement to file a return. The overriding point is gifts at an undervalue of house can't be done without lying to HMRC at some point. Which is not Taxes ( Practical ) .Lootman wrote:Technically it would not be a tax return that would be "false" in that case but rather an IHT declaration later on if the donor dies within 7 years.
Yes but at least for the sale of a primary residence there would be no CGT due anyway, so it seems unlikely that there would be much scrutiny of that declaration at the time.genou wrote:The numbers involved in the house sale would generate a requirement to file a return. The overriding point is gifts at an undervalue of house can't be done without lying to HMRC at some point. Which is not Taxes ( Practical ) .Lootman wrote:Technically it would not be a tax return that would be "false" in that case but rather an IHT declaration later on if the donor dies within 7 years.
But the attempt to get an IHT advantage requires the creation of a Tax Return for CGT purposes ( because of the numbers involved ) . Which then requires the seller/donor to get a proper market value to put in the Tax Return. You can't sell "at a price you are happy to receive" to a connected person ( at least for the purpose of which numbers you return to HMRC ).Lootman wrote:Yes but at least for the sale of a primary residence there would be no CGT due anyway, so it seems unlikely that there would be much scrutiny of that declaration at the time.genou wrote: The numbers involved in the house sale would generate a requirement to file a return. The overriding point is gifts at an undervalue of house can't be done without lying to HMRC at some point. Which is not Taxes ( Practical ) .
This topic is about IHT and not CGT, so the issue only arises if the donor dies within 7 years, and then as an IHT issue only. And by then it would be the executor who makes the declarations and not the donor. The donor would have done nothing wrong - he just sold his house for a price he was happy to receive. It is what is declared post mortem that matters.
Just to be clear I was only suggesting that the sale price be set at the lower end of the range of what is reasonable. So for example one might get three quotes from estate agents and go with the lowest one. That way you can produce a document that backs up the sale price.genou wrote:But the attempt to get an IHT advantage requires the creation of a Tax Return for CGT purposes ( because of the numbers involved ) . Which then requires the seller/donor to get a proper market value to put in the Tax Return. You can't sell "at a price you are happy to receive" to a connected person ( at least for the purpose of which numbers you return to HMRC ).Lootman wrote: Yes but at least for the sale of a primary residence there would be no CGT due anyway, so it seems unlikely that there would be much scrutiny of that declaration at the time.
This topic is about IHT and not CGT, so the issue only arises if the donor dies within 7 years, and then as an IHT issue only. And by then it would be the executor who makes the declarations and not the donor. The donor would have done nothing wrong - he just sold his house for a price he was happy to receive. It is what is declared post mortem that matters.
It doesn't legally work, and it must involve lying to HMRC at least once. The donor must "do something wrong" -- and then possibly depend on whoever deals with their estate to keep up the deceit .