CGT on inherited house

[Marie Millar]

I have a neighbour who has a query re CGT on his house when he dies.
His estate totals approx £330,000 at present. This is £230,000 house - £60,000 put into trust for his 3 children in March 2004 - £15,000 in shares - and £25,000 in the bank. This is to be split between his children. Do they pay CGT on the house when it is sold, please? Also, he has been advised that there will be no tax to pay by the beneficiaries on the trust money. Can anyone confirm this, please?

[Huw Williams]

The answer to the first question is probably simple.

CGT is not payable on assets which you own at death - inheritance tax (IHT) is. So if he owns the house it is CGT free.

Beneficiaries inherit at the value on death (ie the value on which IHT is paid). So if the children inherit and then sell at the same price, there is no gain, so no CGT.

If the sale takes a while and the value goes up then there could be a gain and CGT to pay or there is the possibility of substituting the sale value into the estate valuation (and amending the IHT liability) if certain conditions are met.

I cannot comment on the trust assets though as it depends on the nature of the trust and the assets.

It looks as though some planning has taken place, so your neighbour might want to go back to the person who advised in the first place, or could look for a new adviser to update any plans (as it looks as though there will be IHT to pay on death).

Huw Williams
217 Musters Road
West Bridgford
Nottingham
NG2 7DT

0115 914 6846

[Marie Millar]

Thank you for such a speedy reply. I understand that the trust was described as "a gift in a trust wrapping". I understand there to be tax liable on a sliding scale up to seven years, at which time it will be removed from the estate.

[Huw Williams]

Your description is not enough to look at potential CGT on the trust assets.

Your comment about a sliding scale may also be misleading. The sliding scale only applies to tax payable on a gift. If a gift is within the nil-rate band there is never any tax payable so the sliding scale is irrelevant.

If there is (or might be) tax payable on the gift this means there have been earlier gifts and the IHT position is more complicated. This is because the IHT payable on death is affected by gifts made within the 7 years before death and these might in turn be affected by earlier gifts.


Huw Williams

[Marie Millar]

Dear Huw

Thank you for such a speedy reply.
The £60,000 in gift/trust has been made to avoid IHT on the overall value of the estate. The only gifts made have been within the £3,000 per year allowable. I don't know any more about the gift/trust.