UK Law and Practice Contributed by: Ros Bever, Claire-Marie Cornford, Helen Clarke and Ashley Hill, Irwin Mitchell
Certain opportunities for rebasing are afforded to non-residents, for example in respect of non-resident disposal of UK residential property owned on 5 April 2015 to its value at that date. Transfers of property between spouses or civil part - ners who live together generally take place on a “no gain no loss” basis, so that the recipient spouse inherits the transferor spouse’s base cost. This can be helpful where one spouse or civil partner is a lower- rate taxpayer. On death, the cost of an asset for CGT purposes is uplifted to market value at the date of death. This can be a motivation for refraining from making lifetime gifts of assets pregnant with gain, particularly if they may not be liable for IHT on death (due to being within an available NRB or otherwise eligible for reliefs such as APR or BPR). 2.6 Transfer of Assets: Vehicle and Planning Mechanisms Tax-efficient transfer of wealth to younger generations generally revolves around making use of the “sev - en-year rule”, whereby lifetime gifts (PETs) become exempt from IHT after seven years (as described in 1.1 Tax Regimes ). Less well used is the immediate exemption for gifts made as part of a regular pattern of expenditure out of surplus income. Trusts and FICs, or sometimes family limited partner - ships (FLPs), are commonly used as a vehicle for mak - ing lifetime gifts, but with an element of control and asset protection. Lifetime gifts into trusts are typically kept within the available NRB, which is effectively restored every sev - en years to avoid an IHT entry charge or funded with assets qualifying for APR or BPR. When structured correctly, FICs are not subject to the same limitations as trusts in terms of amount of wealth that may be transferred in without an entry charge, and growth can be rolled up tax-efficiently.
There is scope for deferral of CGT for gifts into trust or of qualifying business assets (via a claim for holdover relief). The statutory scope for varying an inheritance by deed of variation within two years of the death of the deceased, with retrospective effect for IHT purposes and/or certain CGT purposes, provides a useful tool for tax-efficient generation skipping. There is scope for the original beneficiary to retain the ability to ben - efit without the inheritance forming part of their estate for IHT purposes. 2.7 Transfer of Assets: Digital Assets The legal status and associated property rights of digi - tal assets have been somewhat unclear under UK law. Such assets often exist solely as data, and it has been thought that no property rights exist in information itself (albeit intellectual property rights may sometimes arise). It has been argued that any other right is effec - tively a “thing in action”, being a right to bring a claim or merely a bundle of contractual rights between a user and a service provider (rather than entitlement to ownership of an underlying asset). A Property (Digital Assets etc) Bill has been introduced in the UK Parliament, which aims to clarify the position and pave the way for further development of the law in this area. The Bill sets out that a digital asset is not prevented from being the object of personal property rights merely because it is neither a thing in posses - sion nor a thing in action. If passed, the Bill will effectively recognise that digital assets can attract personal property rights, with the expectation that the law in relation to digital assets will rapidly develop via principles established by case law (as is already beginning to happen). Some testators will choose to make certain digi - tal assets part of a specific legacy in their will and/ or complete a digital assets inventory to record key details. It may be necessary to review ISP terms and conditions to be clear about the extent of ownership and the access rights of executors and trustees on death.
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