CG67034 - Relief for Gifts Subject to Inheritance Tax: Computation
Credit for Inheritance Tax Paid
Basic Computation
In the simple case of a gift from donor to donee involving no consideration and where none of the restrictions discussed below apply, hold-over relief is calculated as in the following example:
- On 1 April 2020, Dan gifts quoted shares to the trustees of the Goodricke Discretionary Settlement, in exchange for no consideration. At the date of the gift, the shares were worth 拢500,000. Dan acquired the shares in 2011 for 拢300,000.
- As the gift is to a discretionary settlement, it will be a chargeable transfer for Inheritance Tax purposes. Hold-over relief is available as a result
- In the absence of any relief, Dan鈥檚 gain on the disposal (using its market value, see C) would be 拢200,000
- Where Dan elects for hold-over relief to be applied, TCGA92/S260(3) reduces both Dan鈥檚 gain and the trustees鈥� acquisition cost by an amount equal to which would have accrued in the absence of any relief (being 拢200,000)
- As a result, no gain arises in Dan鈥檚 hands at the time of the gift and the trustees鈥� acquisition cost is 拢300,000
In essence, the relief has 鈥榟eld-over鈥� a gain that would otherwise have been chargeable on Dan against the trustees鈥� acquisition cost. As a result, when the trustees come to sell the asset, an additional gain of 拢200,000 will be brought into charge than would have been in the absence of relief.
Where some consideration is paid by the donee but this does not exceed the donor鈥檚 allowable costs under TCGA92/S38 (see ) then the relief works in the same way as above 鈥� so in our example, the trustees could have paid Dan 拢300,000 for the shares and the computation for the relief given would be exactly the same.
Excess Proceeds
Where the donee pays consideration in excess of the donor鈥檚 allowable costs under TCGA92/S38 (see ), TCGA92/S260(5) reduces the gain that can be held-over by this excess. Using the example above, suppose that the trustees paid 拢400,000 for the shares:
- In the absence of any relief, Dan鈥檚 gain on the disposal (using its market value, see ) would be 拢200,000
- As Dan has actually received 拢400,000 from the trustees, his excess proceeds are 拢100,000 (being the amount received less allowable costs). Relief is therefore restricted to the amount that the gain in the absence of any relief (拢200,000) exceeds 拢100,000, leaving 拢100,000 to be relieved
- As a result, a gain of 拢100,000 is chargeable on Dan and the trustees鈥� acquisition cost is 拢400,000
Under TCGA92/S260(9), this restriction in respect of excess proceeds does not apply where the disposal is one which is deemed to occur on a person becoming absolutely entitled to settled property (TCGA92/S71, see ) or the termination of a life interest on the death of the entitled person (TCGA92/S72, see ).
Credit for Inheritance Tax Paid
Where the disposal in question is a chargeable transfer for Inheritance Tax purposes and Inheritance Tax is payable as a result, the gain accruing to the donee on a subsequent disposal of the asset is reduced by this amount, although this cannot create a loss. TCGA92/S260(8) provides that where the amount of Inheritance Tax payable is varied, any assessments or repayments needed to correct the position can be made.
Apportionment
If the gift is only partly within the qualifying disposals listed in CG67033, or an exemption operates to give only a reduced charge (rather than no charge at all), then TCGA92/S260(10) requires that hold-over relief is only available in respect of that qualifying part.