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- Thinking Ahead Issue 4
Our People in Taxation Consulting
SUCCESSION PLANNING AND WILLS
Consider the following scenario...
You are sitting with your lawyer and reviewing a draft will. Your instructions are simple and your desired outcome was a happy one – half the estate was to go to one benefi ciary and half to the other. Each beneficiary would receive an equal share and everyone is happy – or so you thought!
Without proper tax planning, a “third beneficiary” could be
waiting in the wings to collect a share – and that benefi ciary
is the tax man! And the tax man’s share may not come from
each of your intended beneficiaries – indeed, it may come
from only one of them.
Now, you might be excused for believing that taxes should not apply to the transmission of assets under a will. But there are, however, some special rules in relation to capital gains tax that can change this outcome.
One area where caution needs to be exercised is the transmission of an asset to a non-resident beneficiary. Another is the family home!
Hang on – why the family home?
Isn’t that meant to be exempt from capital gains tax?
Our answer is – that depends!
And this was highlighted in a recent case that came to us for consideration.
Any one of a number of factors can cause a capital gains tax liability to arise in relation to the inheritance of a family home, and these might be related to:
the use of the property by the deceased prior to the
date of death
whether the property was a pre-CGT or post-CGT asset
how long the benefi ciary holds it for
the use to which the benefi ciary puts the property
temporary absences from the property by the deceased such as relocations for work reasons to other locations
Despite the relative simplicity of the concept that a main residence should be exempt from tax, the practical reality can be something different. Our experience is, the capital gains tax rules relating to main residence issues are one of the most complex areas of the law.
So, did our recent case have a happy ending for the beneficiary? Unfortunately not, although with proper planning considerations the outcome may have been different.
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