Inherited Home - Capital Gains Tax?

morphy_richards

My mother sadly passed away quite recently. She has left the family home to my two sisters and myself. We plan to sell the property in the fairly near future.

If the capital gains tax threshold is £10,600 is that per person?

IE. As the property has been left to the three of us, if an estate agent values the property at, for arguments sake say £100,000 and we actually sold it for 110,600 would we pay capital gains on the 10,600? Or would that be below the threshold as there are three of us and the threshold would actually be 3 X £10,600 = £31,800 ?

Also, I'm a little confused as to when it is advantageous to sell the property as our mum's estate or when it would be better to transfer ownership to the three of us and then sell.

Many thanks and kind regards.

clockworks_2

Inhertiance Tax is different to Capital Gains Tax, I think the threshold is £325k per person. You need to check this amount as I am not 100%.

So in theory the estate could be worth £975k before you need to pay anything between the three of you if the estate has been left to you equally.

Sorry to hear about your loss.

ognum

Provided you have paid IHT on your mothers estate if applicable and you sell the house within a short time of probate being granted then there is no capital gain.

If you held onto the house for a long timespan then CGT would be payable on the difference in value when you applied for probate and the selling price.

Annisele

clockworks wrote: »

Inhertiance Tax is different to Capital Gains Tax, I think the threshold is £325k per person. You need to check this amount as I am not 100%.

So in theory the estate could be worth £975k before you need to pay anything between the three of you if the estate has been left to you equally.

Sorry, that's not quite right.

The threshold is indeed £325k per person (see here) - but the "person" we're talking about is the deceased person, not the beneficiaries. In this case, the inheritance tax threshold applies to the mother's estate, and its the same regardless of how many people the estate is left to.

The OP and her sisters might have to pay capital gains tax if the value of the property goes up between the date of her mother's death and the date of sale. There's a good guide here.

clockworks_2

Annisele wrote: »

Sorry, that's not quite right.

The threshold is indeed £325k per person (see here) - but the "person" we're talking about is the deceased person, not the beneficiaries. In this case, the inheritance tax threshold applies to the mother's estate, and its the same regardless of how many people the estate is left to.

The OP and her sisters might have to pay capital gains tax if the value of the property goes up between the date of her mother's death and the date of sale. There's a good guide here.

Thanks for clarifying.I had no idea.

Neverland

Annisele wrote: »

Sorry, that's not quite right.

The threshold is indeed £325k per person (see here) - but the "person" we're talking about is the deceased person, not the beneficiaries. In this case, the inheritance tax threshold applies to the mother's estate, and its the same regardless of how many people the estate is left to.

The OP and her sisters might have to pay capital gains tax if the value of the property goes up between the date of her mother's death and the date of sale. There's a good guide here.

Actually its £325k per person plus the unused part of her husband's personal allowance. Since transfers between husband and wife are exempt the threshold before any inheritance tax is payable could be up to £650k, if her husband just left everything to her when she died

ognum

Neverland wrote: »

Actually its £325k per person plus the unused part of her husband's personal allowance. Since transfers between husband and wife are exempt the threshold before any inheritance tax is payable could be up to £650k, if her husband just left everything to her when she died

Correct that it could be as much as 650k but it does depend on the date of death ( it is actually the allowance at the date of the first death)of a spouse and of course that they were married at death.

Biggles

But as the OP was asking about CGT, not IHT, I'll try starting the ball rolling.

I believe you are correct in thinking that if the house is sold by the estate there will only be one exempt amount for CGT, and if sold by the beneficiaries there will be one exempt amount each. But that might not be useful if one or more have used part of their own allowance already, eg selling shares.

But, in practice in the current climate, isn't it unlikely to be a problem? If you use the same agent to sell the house as made the valuation, I'd have thought it was likely to sell for less, if anything.

RabbitMad

Biggles wrote: »

But as the OP was asking about CGT, not IHT, I'll try starting the ball rolling.

I believe you are correct in thinking that if the house is sold by the estate there will only be one exempt amount for CGT, and if sold by the beneficiaries there will be one exempt amount each. But that might not be useful if one or more have used part of their own allowance already, eg selling shares.

But, in practice in the current climate, isn't it unlikely to be a problem? If you use the same agent to sell the house as made the valuation, I'd have thought it was likely to sell for less, if anything.

No, if the house is sold by the estate within 4 years of death the sale price gets substituted for the probate value. This could give rise to an IHT bill or refund.

Richard_Webster

I am not sure why there has been all discussion about IHT because it wasn't mentioned in the original post!

My understanding is that you pay CGT on the difference between the probate value and the sale value but you can substitute the actual sale value for the probate value in some circumstances. I have always understood that in times of price stability or depression this meant no CGT, but in times of rampant house price inflation this could mean some CGT, and then it would be better for the house to be jointly owned by the 3 so they each had a £10,600 allowance.

morphy_richards

Part of the issue is coming from the fact that the estate agent we paid to value the house for probate has undervalued it to the tune of 10k. (due to "tired" furnishings) in trying to convince him to change his mind as this has potential implications for CGT if we sell the place at or above its real value. He is under the impression that cgt and IHT are the same thing and what he has done causes us no problems.