Capital gains for executors
Discussion
Strange, things appear afoot at the tax office.
My dad died in 2021. My brother and I were his executors. He left a rather large house and very little else. We cleared the house sold it few months later. My brother dealt with the probate office but I’m aware that the probate team revalued the house, meaning that the IHT Bill was bumped up and there were little to no capital gains to pay. The sale was declared and discussed in some depth with the probate office and as far as I was aware everything was finished some time ago.
Unfortunately, last week I received a letter from the personal tax compliance team berating me for not declaring the sale of ‘my’ property and for not paying any capital gains tax. I’ve so far spent 2 1/2 hours on the phone to the personal tax compliance team. In that time. I’ve spoken to 2 people. The first guy told me that it wasn’t something they could help me with and pretty much hung up on me. The second time I managed to speak to someone, they initially said that capital gains tax is due on any money I inherited from my dad. Then they went away to ask for advice. Eventually they returned and told me that I probably didn’t need to pay any capital gains tax if it had already been paid to the probate team. However, I would need to provide exact amount and dates that payments have been made in writing. I did insist on giving him my dad’s, IHT reference.
I have never owned my dad’s property. This is the third time I’ve had to sell a property as a personal representative of someone who has died and in all this time I have never been advised to declare the sale on my personal tax affairs. Note that I am not being chased by the probate team but by the personal tax compliance team. I am assuming that either the solicitor has made the wrong declaration or the tax office have processed it incorrectly.
My brother is pretty much off grid at the moment and I don’t have any copies of the correspondence he had with the probate office just estate accounts. I’m going to try the probate office in the week to see if I can get information to keep the personal tax compliance people happy. Am I going mad or is something strange going on at the HMRC?
My dad died in 2021. My brother and I were his executors. He left a rather large house and very little else. We cleared the house sold it few months later. My brother dealt with the probate office but I’m aware that the probate team revalued the house, meaning that the IHT Bill was bumped up and there were little to no capital gains to pay. The sale was declared and discussed in some depth with the probate office and as far as I was aware everything was finished some time ago.
Unfortunately, last week I received a letter from the personal tax compliance team berating me for not declaring the sale of ‘my’ property and for not paying any capital gains tax. I’ve so far spent 2 1/2 hours on the phone to the personal tax compliance team. In that time. I’ve spoken to 2 people. The first guy told me that it wasn’t something they could help me with and pretty much hung up on me. The second time I managed to speak to someone, they initially said that capital gains tax is due on any money I inherited from my dad. Then they went away to ask for advice. Eventually they returned and told me that I probably didn’t need to pay any capital gains tax if it had already been paid to the probate team. However, I would need to provide exact amount and dates that payments have been made in writing. I did insist on giving him my dad’s, IHT reference.
I have never owned my dad’s property. This is the third time I’ve had to sell a property as a personal representative of someone who has died and in all this time I have never been advised to declare the sale on my personal tax affairs. Note that I am not being chased by the probate team but by the personal tax compliance team. I am assuming that either the solicitor has made the wrong declaration or the tax office have processed it incorrectly.
My brother is pretty much off grid at the moment and I don’t have any copies of the correspondence he had with the probate office just estate accounts. I’m going to try the probate office in the week to see if I can get information to keep the personal tax compliance people happy. Am I going mad or is something strange going on at the HMRC?
Edited by oldbanger on Sunday 3rd March 00:15
Looks like this is confusion, possibly a form being incorrectly filled in?
When you were granted probate, this should have 'zeroed' the estate for CGT purposes. You would have paid any IHT due at this point.
When the house was sold, CGT could have come into play, if the sale price was greater than the value of the property declared on the probate application.
As I understand it (based on my experience a few years ago), the estate has a std CGT allowance (the same as one individual), which can be used to offset the capital gain. This allowance lasts for 2 years post grant of probate. After this time period, this allowance is lost.
So, any gain made on the sale of property would be subject to capital gain tax at 28%, once the annual allowance is taken off. (if sold within 2 years of grant of probate).
When you were granted probate, this should have 'zeroed' the estate for CGT purposes. You would have paid any IHT due at this point.
When the house was sold, CGT could have come into play, if the sale price was greater than the value of the property declared on the probate application.
As I understand it (based on my experience a few years ago), the estate has a std CGT allowance (the same as one individual), which can be used to offset the capital gain. This allowance lasts for 2 years post grant of probate. After this time period, this allowance is lost.
So, any gain made on the sale of property would be subject to capital gain tax at 28%, once the annual allowance is taken off. (if sold within 2 years of grant of probate).
As said above, it seems unlikely that there's any reason for HMRC to query things.
If there was a difference between probate value and what the property was sold for then that may have caught their attention. Are they (HMRC) able to contend that the property was undervalued for probate purposes, thus reducing the 40% IHT charge in favour of a lower CGT charge on sale to the executors?
The OP refers to a sale "a few months later" & HMRC might be thinking the two values should be more or less the same?
It would be useful to have some more detail about "the probate team revalued the house". Who were the "probate team", & who were they acting for - HMRC (District Valuer) or executors? On the face of things, if there was an agreed valuation with (say) the DV, then that should have settled matters for IHT purposes. As OP didn't own the property, it was sold by the executors from the deceased's estate, & any CGT on sale should be borne by the executors / estate & not the OP. There seems no reason for the OP to need to make a Return as he never owned the property. Maybe HMRC are after the executors to make a Return?
If there was a difference between probate value and what the property was sold for then that may have caught their attention. Are they (HMRC) able to contend that the property was undervalued for probate purposes, thus reducing the 40% IHT charge in favour of a lower CGT charge on sale to the executors?
The OP refers to a sale "a few months later" & HMRC might be thinking the two values should be more or less the same?
It would be useful to have some more detail about "the probate team revalued the house". Who were the "probate team", & who were they acting for - HMRC (District Valuer) or executors? On the face of things, if there was an agreed valuation with (say) the DV, then that should have settled matters for IHT purposes. As OP didn't own the property, it was sold by the executors from the deceased's estate, & any CGT on sale should be borne by the executors / estate & not the OP. There seems no reason for the OP to need to make a Return as he never owned the property. Maybe HMRC are after the executors to make a Return?
Not sure if relevent to the OP and allowances may have changed....although I assume OP would know if his brother appropriated on his behalf as well.
https://www.wansbroughs.com/news-events/when-is-a-...
https://www.wansbroughs.com/news-events/when-is-a-...
Edited by LimmerickLad on Sunday 3rd March 11:01
Thanks all. I do think this is confusion on the part of the HMRC but unfortunately the CGT team weren't able to help me at all when I called. Twice.
I have obtained copies of the relevant letters from HMRC acknowledging the CGT return and payment, which I've sent over to them. Hopefully that'll sort it.
If nothing else this has spurred me on to signing up to sit the ATT exams (I'm just an IT bod) so that the next time I call HMRC, at least one of us has had some training in tax.
I have obtained copies of the relevant letters from HMRC acknowledging the CGT return and payment, which I've sent over to them. Hopefully that'll sort it.
If nothing else this has spurred me on to signing up to sit the ATT exams (I'm just an IT bod) so that the next time I call HMRC, at least one of us has had some training in tax.
I doubt the confusion is at HMRC.
As has been said, death zeroes the clock for CGT. IHT is paid instead.
Usually executors get probate on the basis of an estate agent's guesstimate house valuation. They then sell the house, which is the estate or part of the estate, inform HMRC and final IHT is based on the actual selling price.
In the unusual event of executors not marketing the house straight away they would have to pay a professional valuer to do an "RICS valuation" and pay IHT based on that. That valuation becomes the executors' base value for CGT. If the house is later sold by the executors they will have a CGT liability if the property is sold above the RICS valuation.
Yes, executors really do "own" the legal interest in the property of the deceased and will be personally liable if taxes are not paid by the estate. Beneficiaries under the Will do not own a legal interest in anything unless and until property is formally transferred into their names.
As has been said, death zeroes the clock for CGT. IHT is paid instead.
Usually executors get probate on the basis of an estate agent's guesstimate house valuation. They then sell the house, which is the estate or part of the estate, inform HMRC and final IHT is based on the actual selling price.
In the unusual event of executors not marketing the house straight away they would have to pay a professional valuer to do an "RICS valuation" and pay IHT based on that. That valuation becomes the executors' base value for CGT. If the house is later sold by the executors they will have a CGT liability if the property is sold above the RICS valuation.
Yes, executors really do "own" the legal interest in the property of the deceased and will be personally liable if taxes are not paid by the estate. Beneficiaries under the Will do not own a legal interest in anything unless and until property is formally transferred into their names.
When my mum died the house sold for a bit more than the estate agents' valuations (despite telling them we wanted them accurate, not low for IHT).
We worked out the CGT and I sent off a cheque to the Revenue.
They cashed it, then said that they didn't know why I'd sent it. I explained, they said no, that's not right, eventually they sent a cheque back.
My impression is that they're not terribly good at it.
We worked out the CGT and I sent off a cheque to the Revenue.
They cashed it, then said that they didn't know why I'd sent it. I explained, they said no, that's not right, eventually they sent a cheque back.
My impression is that they're not terribly good at it.
Gassing Station | Finance | Top of Page | What's New | My Stuff