Special rules apply to assets when they are passed to a beneficiary after the death of the benefactor. In some cases Inheritance Tax may be due on the transfer. However, there can also be a hidden benefit known as a Capital Gains Tax (CGT) uplift on death (see details of the benefits below).
The CGT uplift mostly benefits a surviving spouse or civil partner. In this case, the transfer will be exempt from Inheritance Tax and the assets will be passed to the surviving spouse for CGT purposes at the probate market value. For example, a spouse may have invested in an investment property or portfolio of shares many years ago and built up a large, unrealised capital gain. The transfer of these assets on death will mean that the surviving spouse will be treated for CGT purposes as if they had acquired the assets concerned at the current market value on the date of their spouse’s death.
The legislation only applies to assets, including shares, comprised in a person’s estate. There is no corresponding provision for assets which are the subject of a lifetime transfer. This ‘relief’ is obviously difficult to anticipate and proper planning must be put in place to ensure that assets qualify. It is important to take proper advice to consider any CGT and / or Inheritance Tax savings.