IHT on estate and CGT on house

Bogof_Babe

A family member who died recently was a widower, and his son and daughter are willed to inherit his entire estate. There are no grandchildren.

My question is that the combined value of his house and his savings will put him into the lower realms of the IHT bracket. It could cost his beneficiaries a large proportion of his savings to pay the IHT, as the family don't want to sell the house for the time being. (It will be convenient for his daughter, who sometimes works where her own home is, but other times works where the house in question is).

My concern is, if in due course they do sell the house, will this then attract CGT on top of the IHT already paid out of the estate? It doesn't seem fair to effectively tax it twice, whereas if it was sold straight away presumably the money would just be added in to the total value of the estate and only taxed once (i.e. included in the IHT calculation). There is no question of the house being rented out to raise an income, it will be for family use only.

Hope that makes sense. Any advice gratefully received.

Robert_Sterling

The two taxes are quite separate.
The appropriate IHT will be paid.
The house can be sold or retained.
If it is sold OK.
If it is retained and it is somebody's principle residence there will be no CGT.
If it is not somebody's principle residence then the CGT rules will come inti play just as they do for everyone else.

Bogof_Babe

Thanks for that reply. So, just to clarify...

(a) If house sold now, say raises £250K, added to £100K savings, total estate £350K. IHT paid on 60K (assuming IHT kicks in at £290K, might be wrong).

(b) House retained but valued at £250K. IHT liability still £60K (value of house plus savings).

Two years on, house sold. Value (for the sake of illustration) still £250K. CGT now payable at whatever percentage "second homes" attract.

If my original premise (a) is wrong, I would be grateful for more info. about why the house value is, or is not, included in the probate processes at the time of settling the tax liability of the deceased.

This would mean that even people who have no intention of retaining the home of a deceased relative will be unable to avoid CGT if the sale of such property is not immediate. If the house sticks on the market, does this count as a capital gain when it eventually sells, even if it is not inhabited in the interim?

Sorry, very confused about all this. Many thanks for trying to help me anyway.

elliebean_2

Bogof_Babe wrote:

Thanks for that reply. So, just to clarify...

(a) If house sold now, say raises £250K, added to £100K savings, total estate £350K. IHT paid on 60K (assuming IHT kicks in at £290K, might be wrong).

(b) House retained but valued at £250K. IHT liability still £60K (value of house plus savings).

Two years on, house sold. Value (for the sake of illustration) still £250K. CGT now payable at whatever percentage "second homes" attract.

Yes, that's right except that the IHT threshold is currently £285K rather than £290K.

Bogof_Babe wrote:

This would mean that even people who have no intention of retaining the home of a deceased relative will be unable to avoid CGT if the sale of such property is not immediate. If the house sticks on the market, does this count as a capital gain when it eventually sells, even if it is not inhabited in the interim?

Generally the house is sold by the executors and then the cash is distributed to the beneficiaries by the executors, so no CGT liable.

Petmidget

Two years on, house sold. Value (for the sake of illustration) still £250K. CGT now payable at whatever percentage "second homes" attract. There is not a rate for 2nd homes, CGT is a tax on asset value increase, so if it were the same then no tax arise. But of course the likelihood is that is will rise.

Also no one has yet mentioned the option to pay IHT in instalments on the estate portion relating to the property.

You can if selling the house within 3/4 years (circumstances dictate which) replace the IHT value with the sale value to avoid CGT, but this will inflate the IHT value and probably wont be worthwhile, but every avenue should be looked at.

Another idea maybe, subject to the daughter using it, move her PPR to the inherited property to gain at least an element of CGT relief for occupation. This will detrimentally affect her own home in relation to CGT but planning and executed correctly, that effect can be avoided.

I would say that you have a variety of options and a bit of decent professional advice should let you see what they are. Spend a couple of hundred quid with a chartered tax advisor, it could save you thousands.

Robert_Sterling

I have removed my original message here as Petmidget go a message in ahead of me which covered the point I was making.