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Where Taxpayers and Advisers Meet

Mistake with CGT calcs

Targatopp
Posts:3
Joined:Fri Dec 03, 2021 11:28 am
Mistake with CGT calcs

Postby Targatopp » Fri Dec 03, 2021 11:41 am

A friends mother died a couple of years ago and her son dealt with the probate .

The house she lived in was held as tenants in common with 50% hers and 50% held under a will trust set up by a deed of variation following her husbands death back in 2003.eg a life interest trust

Her son assuming that his late dads property was in a trust asked HMRC for a UTR reference and filed a trust tax return which caused a £30k cgt liability ouch!



I believe that the trust return was not needed and the trust asetts eg half the house should have been reportable for IHT..in which case the total property gross value was only £700k less selling costs etc and would have been under the property nil rate band

is it possible to get the revenue to relook at this and reclaim the £30k cgt tax unnecessarily paid??

many thanks

Paul

maths
Posts:8430
Joined:Wed Aug 06, 2008 3:25 pm

Re: Mistake with CGT calcs

Postby maths » Sun Dec 05, 2021 1:51 am

You refer to "CGT" but I think you mean "IHT".

If I understand the position, mother owned absolutely 50% of her home and also had a life interest under a trust set up by her husband on his death.

On mother's death 50% of the property's market value fell into mother's free estate and subject to IHT; BUT IN ADDITION the life interest also fell into her estate for IHT. The total IHT payable on mother's estate would be divided pro-rata between the two 50% interests and the IHT attributable to the 50% life interest is a liability of the trustees, not mother. However the IHT attributable to the 50% absolute ownership of mother is an IHT liability of mother's estate.

Targatopp
Posts:3
Joined:Fri Dec 03, 2021 11:28 am

Re: Mistake with CGT calcs

Postby Targatopp » Sun Dec 05, 2021 8:42 am

Yes thats correct..BUT the son thought he had to fill in a tax return for the trust and calculated the gain for cgt which worked out at £30k tax due.

As it was mums principal primary residence and she was a life tenant I believe Principal private residence relief should apply to the property held in trust?

So how should he have declared the trust property? as a separate trust tax return but stating Principle private property relief which would give no gain for cgt and hence no liability? if so how could he claim back overpaid tax?


OR should it have been part of mums probate forms and as property was only worth £700 k in total would have been under extended property nil band

thanks Paul

AGoodman
Posts:1418
Joined:Fri May 16, 2014 3:47 pm

Re: Mistake with CGT calcs

Postby AGoodman » Mon Dec 06, 2021 3:52 pm

If the mother had a life interest in half of the house (which would be an IPDI) and owned the other half then the whole should have been declared for IHT and, as you say, the entire estate could well have been under the nil rate bands.

There is a tax free uplift for CGT under s.62 TCGA which should also apply to the IPDI so there would only be a gain if it was sold for more than the market value at mother's death.

If it was within the last two years then the trustee(s) maybe able to vary the return by filing a corrected one and recover the tax. The standard deadline is 12 months from the filing date - usually 31 Jan - (s.9ZA Taxes Management Act) so he/she may have 7 weeks to fix it. If it was the prior year then he/she may have to thrown themselves on HMRC's mercy.

Given it has already gone badly wrong once, I'd strongly advise that he/she instructs an accountant now to fix it. Right now, because accountants will be extremely busy with their existing clients in January.

AGoodman
Posts:1418
Joined:Fri May 16, 2014 3:47 pm

Re: Mistake with CGT calcs

Postby AGoodman » Mon Dec 06, 2021 3:55 pm

There should have been:

an inheritance tax form in the estate (likely IHT400) which would mention the trust asset
an inheritance tax form for the trust (IHT100)
a tax return for the trustee(s) but only when the property was sold.

Incidentally, as mentioned above, PPR was not the main defence here, it was that there is a tax free uplift, rather than a gain, on death.

maths
Posts:8430
Joined:Wed Aug 06, 2008 3:25 pm

Re: Mistake with CGT calcs

Postby maths » Mon Dec 06, 2021 11:42 pm

On death of the life tenant (ie mother with IPDI) the trustees are deemed to have disposed of, and reacquired, the trust property in which the IPDI subsisted. This would result in a capital gain for the trustees but as the gain arose on death no CGT charge on the gain.

It isn't private residence relief that causes the lack of a CGT charge.

Targatopp
Posts:3
Joined:Fri Dec 03, 2021 11:28 am

Re: Mistake with CGT calcs

Postby Targatopp » Fri Dec 10, 2021 12:16 pm

thank you all for your great advice


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