Capital gains tax planning for properties
This client came to us seeking advice on mitigating capital gains tax on a property. We considered the client’s personal and professional circumstances in detail and explored various options allowing for the potential tax liability to be mitigated. We finally developed a strategy using legislation, HMRC’s guidance and extra statutory concessions which if carefully implemented would allow for the majority of the capital gains tax liability to be eliminated.
Our analysis: This was a complex case and required specialist knowledge of the legislation and HMRC guidance on various reliefs and exemptions. Seeking tax advice from a specialist firm may cost a little but the tax savings are very much worth it.
Positive ruling from HMRC on capital gains tax liability
This client came to us on recommendation from East London. The client had transferred a property to their relative as part of an ongoing internal family arrangement. On the face of it, there was a transfer between connected people and therefore subject to a substantial capital gains tax liability. We considered the case and background and found that the person to whom the property was transferred had retained beneficial ownership of the property throughout the period of ownership by the nominee owner and that there was a deemed trust in place. We discussed the idea with our client and applied to HMRC for a ruling that there was no tax to be paid considering the structuring of the ownership. After waiting for approximately 8 weeks, we received a positive ruling from HMRC confirming that our technical analysis of the ownership structure and of deemed trust was correct and therefore no capital gains tax was payable. This was great news for our client as a potentially substantial tax liability was no longer payable in accordance with the tax legislation.
Our analysis: This was a complex matter and required in depth specialist knowledge of the tax legislation and legal/ beneficial ownership structures. Whilst a tax specialist will no doubt cost more than an ordinary accountant but can bring much larger savings in tax. In this case the additional fee was a fraction of the tax savings brought for our client.
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.
Probate valuations and Capital Gains Tax
This case was referred to our firm by another firm of accountants in London. The client had inherited some properties a few years ago that they wanted sell. The issue was that the valuation used for probate purposes was quite low compared to market value at the time of death which meant that the capital gains tax on sale would be significantly higher. Our team of tax specialists took on the case an applied to HMRC’s valuation team to get a correct valuation. HMRC initially objected to our proposals but having provided sufficient supporting evidence comprising property valuations and sold prices, we were able to agree a figure with HMRC that was much closer to our initial proposal. The agreement by HMRC’s valuation office meant that our client’s capital gains tax liability was reduced to a fraction of the initial figure before we took on the case. The client was over the moon with the savings.
Our analysis: At the time the case was referred to us, our clients or their accountants had not even thought about getting a valuation agreed from HMRC’s specialist unit in order to reduce the liability. Due to our long running experience in our dealings with HMRC, this strategy was discussed with the client and they were quite happy with the idea. The tax savings achieved by our client were far higher than their expectations. It is always a good idea to seek advice from a tax specialist as this can bring substantial savings compared to costs.
Post Death Inheritance Tax and Capital Gains Tax Planning
This client was referred to us by an accounting firm in London. The client had a bereavement in the family and the deceased was subject to significant inheritance tax due to the size of the estate. After long discussions and research into the deceased’s family and background, our specialist tax advisers were able to propose various post-death tax planning strategies to enable the tax liability to be completely eliminated. The tax planning structure was based on existing HMRC practices and the legislation which are often overlooked by advisers.
Our analysis: Inheritance tax is the only tax that can be significantly mitigated or even completely eliminated provided specialist tax planning advice has been taken and sufficient time has been allowed. We have come across a number of situations where clients come to us at a very old age and not much can be done other than some basic tax planning. We have also experienced families having to sell properties in order to pay the deceased’s inheritance tax. In some other cases, where we have been approached at a very late stage for inheritance tax advice, some of our clients have had to take very expensive insurance policies to cover the tax bill in case of death within in a certain time frame.
In the above situation, our client was quite lucky as there were some special exemptions that could be used to reduce the inheritance tax liability. These exemptions are not available to all individuals and our recommendation has always been to seek specialist advice at an early stage.