IHT v CGT on property

slopemaster

Very grateful if anyone can help - I've looked everywhere on HMRC and other sites but can't find the answer.

If you inherit a house and a value is agreed for probate and tax paid. (On the basis that you're keeping the house.)
Then you later sell the house for more than the probate value.

After what length of time does this become liable to cgt (at 18%) rather than IHT (at 40%)?

I've found stuff that says if you sell for LESS, you can claim back the IHT up to 4 years. But its not at all clear whether the time period is the same if you sell for more? I had a vague feeling the solicitor said one year, but didnt make a note because wasnt planning to sell....

ceeforcat

After probate is extracted, estate distributed etc, the house is yours, just as if you had bought it. The cost price will be the value at probate. If you choose to live in it as your main residence, you will be exempt from CGT. If you sell it you will have a capital gain on the increase in value between probate and sale price. Against that you will have a tax free exemption, currently just above £10k.

The capital gains rate is 18%, or 28% if you are a higher rate taxpayer. I have never heard of any circumstance where the sale can be liable to IHT after probate.

pauletruth

the estate will pay iht if it reaches the ceiling were it kicks in. the house will be valued with the rest of the estate. you keeping the house will not reduce the amount of tax the estate hasto pay. if the house is your main home you should be exempt from cgt. the only time you would be hit is if the house was under valued and the tax man found out.

00ec25

the above miss the point

where IHT has been paid, and therefore the value of the property has been "ascertained" for both IHT and CGT purpsoes (ie accepted by HMRC) there is a rule that if you sell the property within X years of the IHT calculation the basis of the IHT calculation can be reassessed to use actual sales price rather than the probate valuation - this means that extra IHT may be payable (sales price> provabte value) or vice versa

The OP is trying to avoid this situation by selling the property after the cut off date for the IHT recalcuation - I have not got the time to look this up but it is in the HMRC guidancne notes for completing the IHT 200/400 forms

(Also, IIRC you had to tick a box on the IHT form when you applied for probate stating that you wanted to use the sales price option in the future)

slopemaster

Thank you.
I looked up the notes to IHT 400, and it doesn't give a specific time period.
But it seems to say (if i understand correctly) that once you have the letter from them confirming that all tax due has been paid, then they will not come back and ask for more.

John_Pierpoint

The important move is for the executor to assign the interest in the property to the beneficiaries clearly in writing, a respectable period before it is sold.

If you "Google" the web, you should find examples of this being done. It is especially important for charities, the last thing they want is a muddle that results in the executor setting a potential CGT bill against the estate's £5,300 nil rate "trust" allowance.

Most "ordinary" people have all or nearly all of their £10,600 annual nil rate CGT band left unused. So if you have half a dozen beneficiaries, voila £63,600 of potentially tax free capital gain (If you are lucky enough to live in a part of the country where property prices are increasing or you are savvy enough to see an angle to the property that both the original probate valuation and the VOA missed.)
[The local authority development control/planning permission department can be something of a lottery - perhaps now more so as the "Condems" are in theory "reforming" the system.]
If the Valuation Office Agency has already agreed the probate value, there is a credibility problem, if 12 months down the line they then try to say, "we must have been incompetent", rather than "the market must have changed".

That said, am I getting the vibe that HMRC, especially the Capital Taxes office, is mission creeping into the original legal dictate that the tax payer is at liberty to order their affairs to minimise the effect of the tax gatherers shovel?

slopemaster

Thanks for that.
I am the executor and beneficiary. The house was transfrerred to me, and I immediately gave half of it to my OH, we are tenants in common. So 2 unused CGT allowances there.

John_Pierpoint wrote: »

If the Valuation Office Agency has already agreed the probate value, there is a credibility problem, if 12 months down the line they then try to say, "we must have been incompetent", rather than "the market must have changed".

Ha! Brilliant.
An extremely good point which I hadn't really thought of like that!

also, though the house wasn't exactly a wreck, we have had painting done and new carpets and other small jobs to prepare it for letting, so if we did achieve a sale price of more than the agreed probate value, there is a feasible explanation as to why.

John_Pierpoint

This is a correction to my posting above that has been drawn to my attention Viz: The trustees/executors have the same allowance for CGT as an individual for 2 years after the death if they sell during that period ie £10,600 for the estate..
http://www.hmrc.gov.uk/rates/cgt.htm

Discussion here
https://forums.moneysavingexpert.com/discussion/comment/49927373#Comment_49927373