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Where Taxpayers and Advisers Meet

CGT on deceased property

Miljee
Posts: 4
Joined: Tue Sep 22, 2015 5:35 pm

CGT on deceased property

Postby Miljee » Tue Sep 22, 2015 5:54 pm

Sorry, am completely out of my depth on this one!

I have Probate, and in order to administer The Estate of my deceased mother, I need to know whether CGT is likely to be payable on the sale of the house which is now under offer; but a beneficiary is desperate to know exactly how much money he will be getting to buy a house for himself so I need to know whether I am likely to need to factor in CGT in the 'final' calculation. (IHT is not payable as my mother inherited the Estate in its entirety from my father who died years ago).

My mother died in Feb this year; the house was shortly afterwards valued by EAs and I submitted an average value when I applied for Probate.
At the time, I thought this value was a bit low (£435,000) although it was a difficult property to value (the estimates varied by £50,000!) - but I was very keen to avoid being seen to deliberately over-value the house to avoid CGT so erred on the side of caution (yes, I know, I know!); I now believe the evidence that shows house was undervalued, borne out by a recent (accepted) offer on the house for £20,000 more than that, made immediately after the first viewings on the house! The house is situated in rural Wiltshire, where, in my opinion, prices haven’t moved a great deal over the past few years, and certainly not between Feb and August this year.

My questions are:
- As the House was never officially valued for tax purposes, can I ask to have my original Probate value changed? Who do I write to, to do this? What ‘proof’ will I need? I recognize I need to have actually sold the house before I can proceed.
- If CGT is deemed to be payable, how much is it likely to be, approximately? Selling fees will be around £6000, thus CGT payable on £14,000 (note the house has not been transferred into the beneficiaries names).
- What form/s do I need to declare a CG?

ANY help or advice would be gratefully received! I've been told 'The Estate has its own CGT' (of how much?)/that 'each beneficiary has to submit their own tax return' (2 are children...)/I've been referred to the HMRC's own website but can't make head nor tales of it!

Thanks

Lee Young
Posts: 2687
Joined: Wed Aug 06, 2008 3:26 pm
Contact:

Re: CGT on deceased property

Postby Lee Young » Wed Sep 23, 2015 9:39 am

Is inheritance tax payable on the estate? If it is then HMRC will probably argue that the higher sale price is the IHT value of the property at the date of death which will mean increased IHT to pay, but no gain, as the "agreed" IHT value then becomes your base cost for CGT purposes.

If IHT is not payable on the estate (even with the increase) then you will face CGT unless you have two beneficiaries of the estate. If you appropriate the property to the beneficiaries then the sale can take place "in their name", which means the gain is theirs. The property can normally be appropriated to them at the date of death value, so no gain on that disposal, and as long as they have not used their annual exemptions the gain of £20,000 is covered in full by their annual exemptions.

If you have only one beneficiary but that beneficiary is married he or she could appropriate half of their entitlement to their spouse and then the sale can be on behalf of the beneficiary and spouse.
Lee Young
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner


Partner, Frettens LLP
lyoung@frettens.co.uk
01202 491701

Miljee
Posts: 4
Joined: Tue Sep 22, 2015 5:35 pm

Re: CGT on deceased property

Postby Miljee » Wed Sep 23, 2015 9:54 am

Thanks.

IHT isn't payable as we were able to use both deceased parents nil band rate or whatever it's called so £650,00 I recall.

We had considered appropriating the property to the beneficiaries (there are 4 including 2 children)- but it's too late now, in that the property is under offer; we would have needed to register the property with The Land Registry before we could do so; and the children's part/s would have had to be held in Trust (though I know their cash inheritance/s will have to be, come the day).

So this is where we are now!

The LR trends show that detached properties in Wilts rose by £4,000 over the past 6 months, not the £20k we're looking at! Is this fact alone likely to sway HMRC? That and maybe some more forensic evidence from our selling agent?

And, assuming The Estate has to pay CGT on £14,000, how much is that likely to be?

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: CGT on deceased property

Postby King_Maker » Wed Sep 23, 2015 11:00 am

A DoT (Declaration of Trust) would avoid the need to alter the LR Title.

Lee Young
Posts: 2687
Joined: Wed Aug 06, 2008 3:26 pm
Contact:

Re: CGT on deceased property

Postby Lee Young » Thu Sep 24, 2015 10:21 am

Executors pay CGT at 28% on the taxable gain. They have a full individual's CGT annual exemption for the (remainder of) the tax year of death and the following two tax years, but thereafter nothing.
Lee Young
Solicitor, Chartered Tax Adviser and Trust and Estate Practitioner


Partner, Frettens LLP
lyoung@frettens.co.uk
01202 491701

Miljee
Posts: 4
Joined: Tue Sep 22, 2015 5:35 pm

Re: CGT on deceased property

Postby Miljee » Thu Sep 24, 2015 6:29 pm

Do you mean 'executors pay...28%..' etc that the executors pay it out of the Estate before distributing it?? And when you say 'they (the executors) have a full individual's CGT exemption' I guess you mean one exemption, the one appertaining to the Estate? Otherwise everyone would line up 10 executors to get 10 exemptions!

As the death was in Feb 14, is the exemption £11,000 ( for 14-15); plus a further £11,100 ( for 15-16)? (What would stop someone dragging that on for the further year to get the 16-17 exemption- that might write off the need to pay any CGT at all on a possible £33,000 potentially taxable sum!? Or have I misunderstood, which is perfectly possible!) And I thought I read somewhere that the allowance is lower for executors i.e. for deceased estates... but I could be wrong!

So, as the sum involved is about £14,000, and if we distribute/administer the Estate now, we can use the £11,000 allowance, plus this year's £11,100 thus no CGT is payable?

lewgeorge
Posts: 35
Joined: Wed Aug 06, 2008 3:56 pm

Re: CGT on deceased property tax return reporting

Postby lewgeorge » Wed Oct 14, 2015 5:03 pm

Hi... we have a similar problem.
Probate value of house £350k sale price likely to be £350k - 3 beneficiaries.
No IHT tax paid.
I phoned HMRC who said when sold do we need to report through a Trust Estate Tax Return SA900 with supplementary page SA905 as the disposal is over £250k....have tried googling but can't find anything about this.!
My siblings haven't used their CGT exemption for this year but I have so if there was any gain would need to pay CGT on my share
Am also concerned at whether we each need to report our share of the disposal on our self assessment tax returns if the Estate SA900 does not apply.
Any help would be appreciated.
Thanks
allison

maths
Posts: 8000
Joined: Wed Aug 06, 2008 3:25 pm

Re: CGT on deceased property

Postby maths » Tue Oct 20, 2015 1:21 pm

Miljee

On the basis that the sale is one by the executors (qua executors) there is a single annual exempt amount offset.

The sale for CGT purposes normally occurs at the date of "exchange" not "completion".

If the former occurs in tax year 2015/16 the exempt amount is £11,100 (£11,000 for 2014/15).

The executors are responsible for discharging any CGT liability.

maths
Posts: 8000
Joined: Wed Aug 06, 2008 3:25 pm

Re: CGT on deceased property

Postby maths » Tue Oct 20, 2015 1:31 pm

lewgeorge

It's unclear who sold the property.

Either the executors sold it or they appointed the property out to the beneficiaries who then sold it.

Whoever sold is responsible for paying any cgt and reporting any gain.

lewgeorge
Posts: 35
Joined: Wed Aug 06, 2008 3:56 pm

Re: CGT on deceased property

Postby lewgeorge » Tue Oct 20, 2015 2:24 pm

Many thanks Maths for your reply.
This was exactly what I needed to know...
The Executors with one tax free band will be selling as hopefully the probate figure is correct... and will need to fill in the SA900 & SA905..
Thanks
Allison


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