Land, inheritance, trusts and capital gains tax

Gifting land or property to children is often a sensible way to reduce your Inheritance Tax (IHT) liability, particularly where there is an intention to apply for planning permission, which is likely to increase its value.

However, a straightforward gift to children is often not really straightforward, because if the land was purchased some time ago, its value will almost certainly have increased and any gift direct to children will trigger a Capital Gains Tax (CGT) liability.

Julia Stahl of our Wills, Trusts and Estates team was recently approached by a client hoping to obtain planning permission on part of his land with a view to building some rental units; he wanted to transfer this land to his children before submitting the planning application.

To avoid an immediate charge to CGT, Julia advised him to set up a trust for the benefit of the children and transfer the parcel of land into the trust with a claim for hold-over relief. As the client was only transferring part of his land into the trust, clear boundaries needed to be marked up and rights of way over the retained land were required, so Julia brought in Freddie Govier-Wright of our property team to advise.

By working together, Julia and Freddie were able to ensure that the intended land was transferred into the trust with appropriate access rights and without risk to the client of an immediate charge to CGT.