CGT on house sale in probate

monkeyspanner

Could anyone advise?
I am acting as executor for a relatives estate.
There are two estate beneficiaries.
I have probate and have agreed a property value with the district valuer.
The house has sold at a higher value than the probate value agreed.
The house sale will complete shortly.
The difference (gain) is £50,000.

I assume that the difference will be CGT liable. Is this an estate liability or does the gain become the beneficiaries liability? If an estate liability does anyone know how this should be declared? The IHT section of HMRC are only interested in the probate value and seem unwilling to give any advice on how to dea with this issue.

Thanks

00ec25

is the estate actually be liable to pay any IHT?

if yes then you can substitute the sales value for the probate value in the IHT calculation (though that would be a silly thing to do with the difference in tax rates!)
if no then the estate must bear the CGT liability and pay up : see last paragraph here
http://www.hmrc.gov.uk/manuals/cgmanual/CG32234.htm

you will need to do a tax return for the estate coveirng both outstanding income tax and CGT liability anyway so you pay the CGT via that claiming the CGT allowance for an estate (provided this is within 2 tax years of death) http://www.hmrc.gov.uk/rates/cgt.htm

please note I stand to be corrected on the above if you sell in a trustee capacity rather than as plain executor

I have also assumed that probate has not been completed and the estate has not yet been distributed

getmore4less

It makes no difference who pays if the cash is being distributed.

It may have been a good idea to assent the house to the benificiaries and use their CGT allowances to reduces the CGT liability.

jimmo

If the will directed that the property should be sold and the net proceeds be distributed to the beneficiaries then the executor was obliged to do exactly that and the capital gain is chargeable on the executor.
If the will simply left the property to the beneficiaries jointly it will then be necessary to look at whether the executor was able to follow the intentions of the deceased or whether he was obliged to sell the property, as executor, for any reason.
The most common reason for that is that there was insufficient cash in the estate to meet the liabilities such as debts owed by the deceased, funeral expenses and Inheritance Tax.
If that applies the executor was obliged to sell the property and the capital gain is chargeable on the executor.
If there was sufficient funds in the estate to meet all liabilities we then need to look at the timing of the sale.
As you have already obtained probate it is probable that the residue of the estate has been determined.
http://www.hmrc.gov.uk/manuals/cgmanual/CG30800.htm
If you can say that the residue of the estate has been determined, the will did not direct that the property was to be sold and it was not necessary to sell the property to pay all liabilities then it is almost certain that, at the date of sale, the executor was not the beneficial owner of the property, the beneficiaries were.
http://www.hmrc.gov.uk/manuals/cgmanual/CG30770.htm
At the time of sale therefore the executor made the sale as bare trustee of the beneficiaries and the beneficiaries are liable to capital gains tax for their respective sales.
With a capital gain of £50k this could be really significant.
If the executor is liable then, at best, there will one annual exempt amount of £10,900 leaving £39,100 chargeable at 28% = £10,948.
If the beneficiaries are liable there will be 2 annual exempt amounts of £10,900 leaving £28,200 chargeable and if they are both basic rate taxpayers the liability will be at 18% = £5,076.
A difference worth exploring I think.

John_Pierpoint

Executors and personal representatives

If you're acting as an executor or personal representative for a deceased person's estate, you may get the [ONE] full Annual Exempt Amount during the 'administration period'. The administration period is usually the time it takes to settle the deceased person's affairs and get a grant of probate (or confirmation in Scotland).
You're entitled to the Annual Exempt Amount for the tax year in which the death occurred and the following two tax years. After that there's no tax-free allowance against gains during the administration period.
Find out more about death, inheritance and Capital Gains Tax



Don't forget that, unlike IHT, the costs of sale are allowable against CGT , as well as the (remains of ?) the £10,900 allowance that each beneficiary can claim personally, if reporting their capital gains for the year.
[I am kind of assuming that the house sold for something more or close to 100k]

http://www.hmrc.gov.uk/trusts/cgt/calculating.htm

I think it is still possible to box really clever by making a profit on the shares as the executor-trustee and then holding the property as bare trustee for the beneficiaries. Given enough ingenuity it might still have been possible to gift half of the property to the legal partners of the two beneficiaries before selling it.

[There is supposedly an overriding principle that a manoeuvre can be disallowed when its only economic justification is to avoid tax. (Tell that to Google, Starbucks, Amazon, Vodaphone et al).
The reality is that UK tax has degenerated into a rats nest of laws and their interpretation that the great majority of tax payers don't understand and cannot afford the costs of having it explained to them every time they contemplate making a transaction].

There will be a number of pre autumn 2007 estates heading for this interesting conundrum on the second death:
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM43066.htm

Never mind the fuss about the bedroom tax, IHT is capable of pushing people out of their family homes.

'But "glory" doesn't mean "a nice knock-down argument",' Alice objected.
'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less.'





Bonne annee et bonne sante

monkeyspanner

Thanks for the replies.
- The will did not stipulate a house sale had to take place.
- There was insufficient assets other than the house to settle the full IHT.
- There was sufficient cash to pay the initial demand for IHT plus the first of 10 IHT installments.
- The house sold for £50,000 more than the probate value agreed with the district valuer.

I assume from your replies that:
-The estate would be entitled to claim one CGT allowance for the year of death i.e. 2013-14 which I believe is £10900.
- That the sale expenses i.e. Solicitor and Estate agent fees would be allowable.
- That the rate of tax chargeable would be 28%.

Could you tell me:
- Are household maintainance, utility and insurance costs during administration allowable?
- Are executors expenses directly related to the house management and sale allowable?
- If they are, is a mileage charge for visiting the property appropriate?

Thanks for your help.

xylophone

http://www.gilberts.uk.com/cms/filelibrary/The_tax_aspects_of_administering_an_estate_after_death.pdf

Any pointers here?

monkeyspanner

Eventually got some sense out of HMRC from a specialist advisor.

Base value of the house is as declared in probate (as agreed by district valuer).
Gross gain is sale price prior to costs.

Allowable Expenses against CGT on sale of house in probate
- Solicitor fees in relation to sale or protection of title.
- Estate agents fees in relation to sale or protection of title
- Executors expenses specifically related to sale or protection of title.
- Improvements but not maintainance

Expenses which cannot be claimed
- Maintainance, insurance and repairs.
- Executors expenses in relation to maintainance or repairs.

Allowances
- In this case one CGT anual allowance £10,900.
PLUS
- Additional Expenses incurred by personal represebtative during administration. As defined by HMRC statement of practice SP2/04 (SP02/04) this can be either actual expenses or a notional allowance amount. The amount allowed is defined in bands by the gross value of the estate prior to IHT.