I may want to gift some UK-based residential property that I own to my children in the future. We are UK/US dual-citizens, US tax payers, and are all currently US domiciled. There are significant unrealized capital gains. However, I am confused about the mismatch of basis and the possibility of double taxation on capital gains.
For example:
1) I gift a residential property to one of my children. I have to pay UK CGT on the transfer. The UK basis that my child receives is now the market value.
2) In the US I declare the gift of the property on a gift tax return (at the original basis.) My child receives the property, but without the corresponding stepped up value.
So if they come to sell the property it looks like there will be double taxation on the gains up to the time of the gift because of this mismatch in basis, and no recognition of the CGT that I paid in the UK.
Is there a way to 'force' a capital gain event in the US at the time of the gift to create the stepped up market value - and take advantage of the tax credit system to avoid double taxation of capital gain?
Of course, they could purchase the property off me instead, but this would attract significant UK stamp duty which of course a gift is not subject to.
Anyone come across this issue in the past?
