Passing Property On - The Generation Game!

For individuals owning property or shares in property related companies, passing these assets on to the next generation can be expensive in terms of the tax payable to HMRC. The current state of the property market does present some opportunities to minimise the tax payable.

On death, Inheritance Tax (IHT) is payable at a rate of 40% on the total value of your estate less the nil rate band – currently £325,000. The total value of your estate includes the value of any property held or shares in property related companies, as well as the value of any gifts made in the preceding seven years.

If instead, a gift is made prior to death then Capital Gains Tax (CGT), at a maximum rate of 18%, could be payable on the gift depending on how the market value of the property or shares in your property related company compares with the price paid. Due to current property values, this can be very much less than was the case, even a year ago.

This is where the opportunity arises (assuming that property values do improve) as even if you were to die within seven years of making the gift, the value will be fixed by reference to today’s values and not those at death.

Other Points to consider:

Entrepreneurs’ Relief can be available on gains realised on property used in a trade or on shares in a trading company. For property companies this would only usually be the case for property development or construction companies. Where Entrepreneurs’ Relief is available, CGT would be payable at a rate of only 10% On the first million of lifetime.

Stamp Duty Land Tax could be payable on the transfer of property or Stamp Duty on the transfer of shares, but only on the value of the consideration received. As with many things, timing is everything, in order to avoid paying both CGT and IHT. Professional advice should be sought before gifts are made.