Interaction of capital gains tax and inheritance tax

Key points

• Capital gains tax and inheritance tax can be due on one transaction.
• Reliefs should be carefully reviewed.
• Availability of business property relief can change between gift and death.
• Transfers into trust usually benefit from holdover relief.
• Timing of distributions can be critical.

The rules on capital gains tax and inheritance tax can be tricky at the best of times. There are however many instances when they interact creating additional problems and some opportunities for effective planning. Interestingly the Office for Tax Simplification looks at the interaction of these taxes in some depth (tinyurl.com/otsihtjul19).

Sale of assets

When an asset is sold most practitioners will consider the capital gains tax position but may ignore the effect on the potential inheritance tax charge on the vendor’s estate. For example a gain on the sale of a business asset by an individual will give rise to a capital gains tax liability....