A mother gave an investment property to her two children in 1990. The children knew nothing about this until their mother died in May 2016, and up until her death she had continued to receive the investment income. The mother died with a substantial estate and inheritance tax (IHT) has been sorted by her solicitors. I am trying to find out how the mother's accountants dealt with the disposal at the time of the gift. It would appear to have been a failed potentially exempt transfer and the capital gains tax (CGT) appears to have been left simply as a future problem for the children. I am making enquiries in case it is relevant. The children have sold the property and need to declare the disposal for CGT purposes. Is the market valuation for the purposes of the CGT taken as at the date of the gift, or  at the date of the mother's death? As the children did not start to benefit from the investment income until the mother died, I suspect the latter, or is it more complicated? Also, if in the case of the latter, if IHT was paid on the gifts with reservation of benefit, must that be reckoned in the valuation to avoid double taxation?

Arthur Weller replies:
If you look at the five criteria listed in HMRC’s Capital Gains manual (www.gov.uk/hmrc-internal-manuals/capital-gainsmanual/cg70230, in particular, the third one) you can see that there is a good argument to say that the mother only transferred the legal title to the children, but retained the beneficial ownership for herself, especially since the children were unaware of the transfer in 1990. If so, the property should be included in the mother's estate for IHT purposes, but the children should use probate value (i.e. value at the date of death) as their base cost for their capital gains tax computation. But whatever you do, you must explain what you are doing to HMRC, so that they cannot come back later to ch