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Hi
in one question L. inherited land from his mother, the lad had a market value of 182000 at the time of inheritance, and his mother bought the land originaly for 137000, what is the base value of the land?
is the “diminution in value” rule applies here?when spouses give an asset to one another the original value stays, when asset is inherited, the market value of the time of inheritance becomes the base cost?
ThanksI think you may be confusing IHT and CGT. The diminution in value principle is how we compute the transfer of value for IHT purposes when an asset is gifted, whereas we use the OMV of the asset for purposes of CGT. When an asset is inherited on the death of the donor there is no CGT and its OMV is then deemed to be the base cost of the asset to the donee.
In the example you quote the land would be included in the IHT Chargeable Estate computation of the mother at its then OMV of 182,000 and this would also be the deemed base cost to the son for purposes of CGT should he dispose of the asset in the future.
When a spouse transfers an asset to the other spouse in lifetime it is a no gain no loss transfer for CGT ie it is transferred at cost, and it is an exempt transfer for IHT. On the death of the taxpayer there is no CGT and the donee spouse acquires the asset at a base cost equal to its OMV. Again for IHT transfers between spouses are exempt.
Hi
for CGT I get it, but for IHT I am still confused: in one simmilar example:
“the transfer of value is 46000, which is the dimunition of value of the donor’s estate at the time of donation”
then the book uses the 46000 as base for the IHT calculation
12000 x 0% (exempt)
34000 x 40% = IHT to be paid
———-
46000in the same example there was a house at the time of donation valued at 99500, at the time of death it was valued at 110000, but the book uses the 99500 as base for the IHT calculation
so do we use OMV as base for IHT caculation or we use the original cost/dimunition of value at the time of transfer as base?
ThanksOn a lifetime transfer the transfer of value is computed using the asset values at the date of the transfer – NOT the costs of those assets. Assets within the chargeable estate at death are then valued at their values at the date of death, other than a life assurance policy where the proceeds of the policy would instead be used.
Usually the transfer of value will be the same as the OMV of the asset but the calculation of the diminution in value of the estate of the donor is required when dealing for example with unquoted shares where prices per share will apply to different levels of shareholding, the bigger the shareholding the higher the share price – see example in the OT course notes.
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