Inheritance tax and capital gains tax planning for a large estate

This client came to us through another firm of accountants from London. The client had a significant portfolio of investment properties as well as a high value main residence. The client was seeking advice to mitigate capital gains tax on transferring the investment properties to their children and also to reduce their estate for the purposes of inheritance tax at death. Our client had been to a number of accountants and tax advisers previously but had not been able to find a solution. Our tax specialists were able to propose a tax strategy that allowed capital gains tax on transfer of properties to children to be eliminated as well as significantly reduce or eliminate the potential inheritance tax liability. Our firm also helped with complete implementation of the strategy achieving capital gains tax, income tax and inheritance tax savings.

Our client had previously been advised on transferring the investment properties into a limited company to achieve income tax savings. In our view, this approach carries a significant risk that HMRC may seek to charge capital gains tax on the transfer. The advisers rely on the Ramsay case) and hope that HMRC will not challenge. Firstly, the risk of significant capital gains tax becoming payable is there and has become reality in many cases. Even if the case went to the Tax Tribunal and was won by the taxpayer, it does not achieve significant inheritance tax savings or capital gains tax savings on transferring of properties to children. Furthermore, as the property prices keep increasing and if the limited company was to sell one of the investment properties, it would pay capital gains/ corporation tax on the disposal and the shareholders would pay income tax on extracting the profit from the company. This means that transferring properties into limited companies are subject to double taxation.

Our analysis: Our firm specializes in capital gains and inheritance tax planning strategies and we have advised on a number of cases involving a large portfolio of investment properties. There are several strategies available and being marketed by accountants and tax advisers. One needs to be careful before going ahead with a strategy and think through right to the end of the tax implications i.e. capital gains tax, income tax and inheritance tax. We have seen that some clients only aim to mitigate income tax but forget the capital gains or long term inheritance tax planning.

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