Inheritance

[TortoiseT]

My uncle died last year and half the house was put into trust and the other half left my aunt.
Then my aunt died 10 months later.
We had the house valued for probate at £490,000 but then got some more valuations and sold it for £565,000.
Will this mean we have to pay capital gains tax?

[AGoodman]

By default, yes.

The actual tax will depend on whether your Aunt's executors sold or it was first transferred to beneficiaries. If the former, it would benefit from one annual exemption, if the latter, one annual exemption for each beneficiary.

If the estate was IHT free (as may be the case), you sold within three years of the death and the sale was to an unconnected third party, then you could apply to substitute the sale value as the probate value under s.191 IHTA. This would then avoid CGT on the sale as there would be no gain.

You would not want to do this if the estate was already subject to IHT, or it would render the estate taxable on the extra value, as you would be paying 40% IHT rather than 28% CGT.

[maths]

I would be interested in AG's comments on the following.

My uncle died last year and half the house was put into trust and the other half left my aunt.

This suggests that the uncle owned 100% of the beneficial interest in the property. He then settled a proportion of the property on a nil rate band discretionary trust and left the balance absolutely to the wife (aunt).

1. If the aunt was treated as possessing an IPDI then on her death the trustees would be deemed to have disposed of their interest and then re-acquired it at its then market value. Then either a sale by the trustees of their interest may have been made or an appointment out to one or more beneficiaries of the trust was made followed by a sale by the beneficiaries.

2. With respect to the balance of the property beneficially owned by the aunt, following her death the sale would be effected by those who inherited her interest.

3. If no IHT was payable on the aunt's death then ss190-198 cannot be utilised as there has to be an "appropriate person" who pays the IHT but there is no IHT.