CGT issue with property inheritance etc

xx eddie

Looking for some advice on the following.

My Uncle is being left a property by a family friend. She has told him he is getting it and that it is up to him to sort out the most tax efficient manner for the transaction to take place.

Property is probably worth about €500,000.

Anybody been through something similar or can give any pointers on the best way forward with this.

Kinetic^

xx eddie wrote:

Looking for some advice on the following.

My Uncle is being left a property by a family friend. She has told him he is getting it and that it is up to him to sort out the most tax efficient manner for the transaction to take place.

Property is probably worth about €500,000.

Anybody been through something similar or can give any pointers on the best way forward with this.

Get the property valued on the date or near enough date that it happened, try hint that you want a high value which.

Then if the property is disposed off then the base value will be the value on the date of acquisition from his friend.

ck1

I am assuming that the property is being left to you uncle upon death of this friend. Well, it really makes no difference what you get the property valued for at that point if you are intending to retain the property as a second home unless they change the Capital Gains Tax rates. Inheritance tax is payable at 20% on value of asset on date of death less of course the exemption which is around €45k. Then Capital Gains Tax is payable on disposal at a rate of 20%.

Example – Property inherited at a value of €500,000 – 20% IHT payable on €455,000 = €91,000. Property sold in say 10 years for €1m – 20% CGT payable on €500,000 - €1,270 = €99,746. Total payable €190,746

Property inherited at a value of €400,000 – 20% IHT payable on €355,000 = €71,000. Property sold 10 years at €1 million – CGT payable on €600,000 - €1,270 = €119,746. Total payable = €190,746

By increasing the valuation on date of inheritance where the asset is being passed from a friend all you are doing is increasing the amount of IHT to be payable but by lowering the valuation you are effectively deferring some of the tax to point of sale.

What you could look at is implementing a Section 60 policy to cover the IHT however the premiums must be payable by the person who is leaving the property to your uncle. This potentially may assist your uncle should he wish to retain the property after he inherits it in so far as he will not have to sell it to pay the tax if he had no other sources.

xx eddie

Thanks for reply.

Property will be left upon death unless it is benifical to transfer ownership beforehand. In either case I believe he would be looking to sell either to pay off any tax liability or the fact he doesn't need a 2nd residence. He may decide to keep it as a rental property but I'm assuming he will sell it.

Person leaving the propery wouldn't be in a position to cover premiums (not sure what Section 60 entails but I'll check it out). Cheers.

ck1

Section 60 is a particular section in legislation whereby a life policy is written under at inception, which allows the benefits to be exempt from IHT. The other is a Section 118, which covers gift tax.

Really makes no difference when the property is passed or when he sells the property as the IHT rate and CGT rate presently is identical. The only times that it is beneficial to pay closer attention to transfer prices is when it is within IHT limits.

Consideration could be give to passing the property to his entire family jointly whereby multiple exemptions could be availed of but this obviously is dependant on whether you uncle wants to pass on any of this inheritance to any of his family. Additionally, if he wanted to keep it he could borrow on the strength of the property to pay the IHT thus giving him the option to retain the property and rent it out thus availing of any capital appreciation or if he had children he could have it whereby the property is inherited between them and him and passed to them upon his death which avail of higher exemptions. Obviously this depends on his overall assets and his family situation. There are so many variables it really is dependant on his present and future situation.

The property would not happen to have any agricultural element would it.

xx eddie

No agricultural element unless he plants a few head of lettuce in the back garden. Otherwise no.

Passing to entire family is an option alright if this turns out to be the best way forward. As you say there are a lot of variables and its a bit of a minefield.

Thanks again for the advice given the limited details I can supply.

ck1

Your welcome, loved the comment on lettuces, made me giggle !!!

Post again on this if you have any other questions on this matter. Good Luck.