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ACCA Strategic Professional · Advanced Taxation (UK) · Capital gains tax: gains and losses on the disposal of movable and immovable property

Imran gives his non-residential investment building to his daughter, a UK resident adult, and he dies four years later. The gift was a potentially exempt transfer. For the lifetime gift, which statement about CGT and IHT is correct?

Imran is treated as disposing at market value for CGT even though he receives nothing. The gift is a PET that becomes chargeable to IHT because he died within seven years of making it.

  1. AImran has a chargeable gain based on market value at the gift date, and the PET becomes chargeable to IHT on his death within seven yearsCorrect
  2. BNo CGT arises because the gift is to a family member, and the IHT PET is exempt for ever
  3. CImran's gain is computed using the original cost since no proceeds are received, and IHT is charged immediately at 20%
  4. DCGT is payable only if the daughter later sells, and IHT is payable only on the death estate

Explanation

A gift of a chargeable asset is a disposal at market value for CGT, even to a family member. The PET becomes chargeable because Imran died within seven years, though taper relief may reduce the tax at four years. Immediate IHT at 20% applies to chargeable lifetime transfers, not PETs.

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