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Where Taxpayers and Advisers Meet

Is Capital Gains Tax payable on an inherited property?

vconfused
Posts:2
Joined:Mon Jul 24, 2017 2:47 pm
Is Capital Gains Tax payable on an inherited property?

Postby vconfused » Mon Jul 24, 2017 3:25 pm

My sister and I were executors to my mothers will in 2009. Her property was left on trust in her will to allow our brother who had never left home to reside in the property as long as he wished.Our solicitor indicated that the deeds should remain in our mother's name until circumstances changed.
In mid 2015 our brother's had deteriorated and he had to go into sheltered accommodation. We realised that our brother would eventually need to go into a care home and so decided to rent the property in order to offset future care costs. At this point our solicitor advised that the property should formally be put into trust and a trust document was duly signed and registered with the Land Registry in our joint names, although the solicitor said in writing that the Land Registry never register the Trust Deed.
The trust was according to the solicitor was "quite simply that we were holding the property to allow our brother to reside there and that on his death the trust would end and the property would be held in our joint names as tenants in common."
The property was rented to family members (sister's granddaughter) from February 2016 until June 2017 when the property was sold to the tenants. Sadly our brother passed away (December 2016) in a care home where he had been in residence for just 2 months and had self financed.
A gain of £15000 has been made from the value of the property at probate to the actual sale in June2017
We are very confused as to whether Capital Gains Tax is applicable and would value any help.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Is Capital Gains Tax payable on an inherited property?

Postby AGoodman » Tue Jul 25, 2017 10:58 am

This does sound a little confused - in particular:

(a) I don't understand why you would sign a trust deed if the trust was contained within the will - unless the document you actually a transfer or similar to register the property in your name;
(b) it isn't clear whether, under the terms of the Will, your brother's interest came to an end when he left the property. Wills are drafted either so that the interest ends when the beneficiary ceases occupation, or so that it continues for life. or it may have been entirely discretionary. I've assumed your mother gave him some rights so the trust was not discretionary. If the trust continued, the rental income was his, if not, it was presumably yours.
(c) you haven't said who the ultimate beneficiaries were but I presume you and your sister took outright in equal shares.

End of the Trust

In any case, the likelihood is that the property would have qualified for PPR for the period from 2009 - 18 months after your brother moved out, which sounds like Dec 18. This means there was no CGT when the trust came to an end (whenever it ended). If it ended with him moving out then it may be necessary for the trustees to make a claim for the relief.

Sale

If the trust ended on him moving out in mind-2015, you and your sister would have realised a gain of the increase between mid-2015 market value and June 2017 value. Each would make a gain of 1/2 which would likely be covered by your annual exemption.

If the trust continued to Dec 2016, your gain would be that between Dec 2016 and June 2017 - so even smaller.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Is Capital Gains Tax payable on an inherited property?

Postby maths » Tue Jul 25, 2017 2:19 pm

I agree with AG's comments above.

1. If the trust (likely to be an interest in possession trust) terminated when your brother moved out then the trustees would be treated as having disposed of the property and reacquired it as bare trustees for you and your sister for CGT purposes. However, private residence relief should be available to the trustees so that no actual capital gain subject to CGT arises; however, the trustees must make a claim for this relief.

2. If on the other hand the trust terminated only on the death of your brother then at that time the trustees are treated as having disposed of the property and reacquired it as bare trustees for you and your sister. But in this case there is a tax-free uplift in the value of the property and no CGT charge arises. There is no requirement for a claim to be lodged as mentioned under point 1 above.

3. Under 1 a CGT charge will arise on the sale by you/sister based on difference between sale proceeds and market value of property when brother moved out.
Under 2 a CGT charge will arise on the sale by you/sister based on difference between sale proceeds and market value of property at date of brother's death.

Given each of you/sister have an annual exempt amount for CGT purposes no actual charge would appear to arise under 1 or 2.

vconfused
Posts:2
Joined:Mon Jul 24, 2017 2:47 pm

Re: Is Capital Gains Tax payable on an inherited property?

Postby vconfused » Thu Jul 27, 2017 2:34 pm

Thank you for your views on my post you have enlightened me considerably.

Our brother had mild learning difficulties so it was our mother's wish that we were given the responsibility that he should always have a roof over his head. Hence her will stated that should our brother leave the property it should be sold and the funds used to this end and for his benefit for the remainder of his life. We as trustees were given the discretion to make final decisions.

When our brother went into sheltered accommodation we knew that one of his medical conditions had the potential to require long term residential care and therefore decided to rent the property at least in the short term to offset possible care home fees in the future.

At this point we were advised by our solicitor to have a formal trust deed drawn up in order that the property could be registered with the Land Registry in our names as trustees in order that we could rent out the property legally. We were advised by our solicitor that the trust came to an end on the death of our brother in December 2016.

I hope I have cleared up any confusion from my initial post.

It would appear from your replies that we will not be liable for Capital Gains Tax but do we have an obligation to report to the revenue or can it just be left without action?

Also the only record of the property being on trust is within the will (proved with the probate authorities) and with the Land Registry in September 2015. Is this sufficient or should it have been registered with HMRC?

Finally the income from the rental was put into a separate bank account (registered as a Trust account with the bank only) intended for possible care home fees for our brother but never required due to the very short duration of his final stay in such a residence. The proceeds of the rental have subsequently been inherited by my sister and I, as have the proceeds of the house sale, and I would assume that the income tax on the rental will be charged on ourselves as individuals rather than as a trust.


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