Where a transfer of assets within a family is being considered, it is often useful to consider the relief that enables a person to whom an asset is transferred to take credit against his or her gift or inheritance tax for any Capital Gains Tax paid by the person making the transfer.
In cases where a liability to Capital Gains Tax arises, the availability of the credit can often be used to significantly reduce or even eliminate the gift or inheritance tax burden that would otherwise fall on the person to whom the asset is transferred.
Typical Problems that we come across
Credit is given on an asset-by-asset basis and the amount of the credit is restricted to the lesser of:
- The Capital Gains Tax attributable to the asset being transferred, or
- The gift or inheritance tax attributable to the same asset.
Where a bundle of assets is being transferred it can be the case that although the overall Capital Gains Tax liability will exceed the overall gift or inheritance tax, not all of the Capital Gains Tax will be available for credit due to the restriction. This can produce a nasty shock in cases where a transferee had assumed that full credit would be available.
How We Can Help
Careful planning is required before assets can be transferred tax effectively within a family. We look to work with clients to gain a full understanding of the asset-transfer proposal and to measure the tax effects prior to execution of the plan.