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bigduckontax, Accountant
Category: UK Tax
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Big Duck on tax Last week you answered my question re

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Big Duck on tax
Last week you answered my question re incorporation relief.
Now if my client introduces several commercial buildings which are rented out into a limited company and then gives shares in the company to family members
can they claim holdover relief for capital gains tax purposes ?
Submitted: 1 year ago.
Category: UK Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

When the premises are passed to the limited company then roll over relief applies, but this merely postpones the gain. If he then gives shares in the company away to family members the properties still remain in the company and no disposal has taken place.

However, by making the gift a Potentially Exempt Transfer (PET) is created in his Inheritance Tax (IHT) affairs. PETs run off at a taper over seven years and in the event of his decease within this period are added back to his estate for IHT purposes. PETs are the first to suffer IHT and if the estate is insufficient to meet the tax on the PET then the liability cascades down to the beneficiary for immediate payment.

As Benjamin Franklin once sagely quipped 'In life there are but two certainties, death and taxes.' As these transactions will be deemed to have been undertaken to reflect current market values then eventually they will be caught by tax. IHT kicks in at 325K and is at a 40% flat rate on any surplus over that figure.

I do hope that I have been able to shed some light on the position.

Customer: replied 1 year ago.
But is there any CGT on the share transfer ?
Expert:  bigduckontax replied 1 year ago.

Yes, the gift of the shares constitutes a disposal so your client will be liable to CGT on the proportional gain made. The gain would be based on the acquisition cost of the shares and their market value as at transfer. This will be very difficult to assess and you may require the services of a trusted local professional to negotiate with HMRC as there is sure to be differences of opinion on such a nebulous position.

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