IHT / CGT question
Discussion
Hello i have a question that perhaps someone could help with?
My Dad died last year and left everything to me and my Sister 50/50 - namely the house and some cash shares etc.
After we had used all the IHT allowances we worked out that no IHT was due and we were granted probate.All good so far.
We sold the house this year for about 100k more than the IHT valuation (but still within the allowances so no IHT due).
But my question is do we have to pay CGT on the increase in the house value?
Many thanks!
My Dad died last year and left everything to me and my Sister 50/50 - namely the house and some cash shares etc.
After we had used all the IHT allowances we worked out that no IHT was due and we were granted probate.All good so far.
We sold the house this year for about 100k more than the IHT valuation (but still within the allowances so no IHT due).
But my question is do we have to pay CGT on the increase in the house value?
Many thanks!
Sorry for your loss. Couple of things to add having been through this. Not an Accountant!
You can pay the CGT online it’s easy on the HMRC site. It’s not done on your tax assessment. It is the “executor” as an entity paying it. This also means that the executor has a cgt allowance, currently £12300 before you start to pay.
IHT is based on value at death, the increase in value of the sale of the house will not impact IHT even if it is over the allowance, unless HMRC thinks you had grossly underestimated the value at death. Hence the need for proper valuations for the IHT submission.
There is a way to transfer the house before sale to the beneficiaries of the estate. Then they sell it as their property and you can use each beneficiaries cgt allowance instead of the one for the executor. Was more hassle than it was worth in my case.
You can pay the CGT online it’s easy on the HMRC site. It’s not done on your tax assessment. It is the “executor” as an entity paying it. This also means that the executor has a cgt allowance, currently £12300 before you start to pay.
IHT is based on value at death, the increase in value of the sale of the house will not impact IHT even if it is over the allowance, unless HMRC thinks you had grossly underestimated the value at death. Hence the need for proper valuations for the IHT submission.
There is a way to transfer the house before sale to the beneficiaries of the estate. Then they sell it as their property and you can use each beneficiaries cgt allowance instead of the one for the executor. Was more hassle than it was worth in my case.
Edited by Mr Dendrite on Saturday 19th November 08:52
Edited by Mr Dendrite on Saturday 19th November 08:53
There are some massive problems with the current "real time" filing and paying of CGT. CGT is not a "stand alone" tax. How much CGT you need to pay is affected by your other income from other sources (salary, dividends, interest, sole trader/partnership profits etc etc). Many of these additional amount cannot be known with certainty until the tax year has ended.
At best, the CGT you pay under the 60 day rule is a "best guess" and needs to be cortrected for any under or over payments after the end of the tax year. The way to do this is to complete a Self Assessment tax return or speak to HMRC after the year end so you can correct the undoubted inaccuracies that will have been included in the on-line payment of the CGT.
At best, the CGT you pay under the 60 day rule is a "best guess" and needs to be cortrected for any under or over payments after the end of the tax year. The way to do this is to complete a Self Assessment tax return or speak to HMRC after the year end so you can correct the undoubted inaccuracies that will have been included in the on-line payment of the CGT.
V1nce Fox said:
If a property is worth more than the current inheritance tax threshold but there are two beneficiaries, do they still pay iht as their shares each fall below the threshold?
IHT and CGT are completely separate. IHT on value at death. IHT is paid by the estate not the beneficiaries, think of the estate as a separate person! CGT on gain in value from death to sale. If the value drops then tough if you’ve already had to pay IHT!If the estate eg the executor sells the house then the CGT is on the estate.. If the executor transfers the ownership of the property to the beneficiaries then the beneficiaries can all use their CGT allowance.
We looked at as there were a number of grandchildren who were beneficiaries. We didn’t use that option as it would have meant they would have been classed as house owners and lost any future benefits as first time buyers, like lifetime isa etc.
Edited by Mr Dendrite on Saturday 19th November 09:55
Eric Mc said:
There are some massive problems with the current "real time" filing and paying of CGT. CGT is not a "stand alone" tax. How much CGT you need to pay is affected by your other income from other sources (salary, dividends, interest, sole trader/partnership profits etc etc). Many of these additional amount cannot be known with certainty until the tax year has ended.
At best, the CGT you pay under the 60 day rule is a "best guess" and needs to be cortrected for any under or over payments after the end of the tax year. The way to do this is to complete a Self Assessment tax return or speak to HMRC after the year end so you can correct the undoubted inaccuracies that will have been included in the on-line payment of the CGT.
Does this all apply to the OP selling a house as an Executor though? Is the Estate simply not paying CGT on the increase in value between death & sale? Does the Estate benefit from the £12,300 CGT allowance? At best, the CGT you pay under the 60 day rule is a "best guess" and needs to be cortrected for any under or over payments after the end of the tax year. The way to do this is to complete a Self Assessment tax return or speak to HMRC after the year end so you can correct the undoubted inaccuracies that will have been included in the on-line payment of the CGT.
Surprised that in the recent budget, that CGT was not raised from 20/28% to the Income Tax rate of 40%. Since the present CGT allows for shares income to be transferred to CGT. The same also applies in the OP's case, one rate of tax removes not only confusion, but also switching between type of tax.
Once upon a time there was no specific CGT rate. CGT was paid at the individual's income tax rate, whatever that happened to be.
However, in those days, the pain of having to pay CGT at your highest rate of Income Tax was somewhat mitigated by the use of the inflation calculator or, later, indexation. This helped lower any gain before tax was applied.
When indexation was abolished, the chancelor at the time (Darling, I think) sweetend the pill by introducing a "new" special CGT rate of 10%.
However, that is slowly fading from memory as special rates of 18% and 28% were introduced for residential property disposals. CGT has been getting more and more painfull over the last ten years.
However, in those days, the pain of having to pay CGT at your highest rate of Income Tax was somewhat mitigated by the use of the inflation calculator or, later, indexation. This helped lower any gain before tax was applied.
When indexation was abolished, the chancelor at the time (Darling, I think) sweetend the pill by introducing a "new" special CGT rate of 10%.
However, that is slowly fading from memory as special rates of 18% and 28% were introduced for residential property disposals. CGT has been getting more and more painfull over the last ten years.
So the gain on residential property above the declared probate value +£12,300 would be liable to CGT at 28% in the current tax year.
If the property had been transferred to the two beneficiaries pre-sale, each would have a their own £12,300 allowance (assuming that they were not using it elsewhere) and if each beneficiary’s share of the post-probate gain was above their available allowance, some CGT could have been payable at the lower 18% resi prop rate (if they were a basic rate taxpayer), and only the excess (if any) at the higher 28% rate.
If the entire estate was ‘comfortably’ below the available IHT threshold, there would have been no reason not to seek a ‘full’ valuation for the property to avoid the risk that CGT would be payable if the property sells for more than this and with no downside in doing so (unless there were ‘executor’s fees’ payable based on the agreed estate value).
If the property had been transferred to the two beneficiaries pre-sale, each would have a their own £12,300 allowance (assuming that they were not using it elsewhere) and if each beneficiary’s share of the post-probate gain was above their available allowance, some CGT could have been payable at the lower 18% resi prop rate (if they were a basic rate taxpayer), and only the excess (if any) at the higher 28% rate.
If the entire estate was ‘comfortably’ below the available IHT threshold, there would have been no reason not to seek a ‘full’ valuation for the property to avoid the risk that CGT would be payable if the property sells for more than this and with no downside in doing so (unless there were ‘executor’s fees’ payable based on the agreed estate value).
I’d start with the valuation. And reassess whether that was correct or not. Failing that, you could try making an election to substitute the current value to the estate, which would mean the cost you inherit it at is equal to the sale price, so no gain arises (S191). You can do this on land which is sold within 3 years of death, but HMRC resist any claims where IHT has not been paid.
wilm001 said:
We sold the house this year for about 100k more than the IHT valuation (but still within the allowances so no IHT due).
As others have already asked but you haven't picked up - what exactly was that "IHT valuation"?If it was a proper, paid for RICS valuation then that is definitely the Executors starting point for CGT. But you won't have needed one of those fancy valuations if you were clearly within the tax free IHT band so why would you have paid for one? I doubt that you did.
If the valuation was just one or more estate agents' estimates of what the house would sell for then that doesn't fix anything. The real probate value will be the amount the executors actually sell the house for. That is, unless there's been significant delay AND unless there's clear evidence of an increase in market value of that type of house in the particular location in the intervening months.
You ought to consider getting proper, paid for advice on this issue since CGT on £100k is pretty hefty for a residential property.
Slightly off topic but still relating to CGT.
If a house was gifted 7 years ago to children, parents still alive so no inheritance tax implications.
House lived in by parents for the entire period, but now is being sold (house in childrens names) - is CGT tax due on difference in house value between now and 7 years ago?
If a house was gifted 7 years ago to children, parents still alive so no inheritance tax implications.
House lived in by parents for the entire period, but now is being sold (house in childrens names) - is CGT tax due on difference in house value between now and 7 years ago?
river_rat said:
If a house was gifted 7 years ago to children, parents still alive so no inheritance tax implications.
House lived in by parents for the entire period, but now is being sold (house in childrens names) - is CGT tax due on difference in house value between now and 7 years ago?
It sounds as though they might have slipped up with that.House lived in by parents for the entire period, but now is being sold (house in childrens names) - is CGT tax due on difference in house value between now and 7 years ago?
For IHT purposes the house remains owned by the parents (i.e. "within their estates") unless they've been paying the children an open market rent to live there. [That rent would be subject to income tax in the children's hands.]
Otherwise, arrangements of the sort you have described are specifically outlawed by legislation and are known as "gifts with reservation of benefit".
https://www.kingsleynapley.co.uk/insights/blogs/pr...
https://www.gov.uk/hmrc-internal-manuals/inheritan...
I don't know the answer to the CGT point and the family should get paid advice from an expert. Logically if the gift is ineffective for IHT I'd expect the house the house to still be exempt from CGT as main residence of the parents who "own" it, but I don't know the answer.
On the other hand if the children have been receiving a market rent then, yes, they are within the CGT regime from the date of the gift. For CGT they will need to be able to prove the value of the property at date of gift - i.e. their base value - and to do so they would need to have a professional, paid for RICS valuation at that date. CGT would be at the enhanced (+8%) rate for residential property.
river_rat said:
Slightly off topic but still relating to CGT.
If a house was gifted 7 years ago to children, parents still alive so no inheritance tax implications.
House lived in by parents for the entire period, but now is being sold (house in childrens names) - is CGT tax due on difference in house value between now and 7 years ago?
I’m afraid the children now have a CGT event (market value at sale less at the time of the gift), and there never was a gift for IHT purposes as there was what’s know as a gift with reservation of benefit. If a house was gifted 7 years ago to children, parents still alive so no inheritance tax implications.
House lived in by parents for the entire period, but now is being sold (house in childrens names) - is CGT tax due on difference in house value between now and 7 years ago?
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