CGT and Inheritance Tax on property

zygurat789

The value of the estate for IHT is the NET value ie £630,000 + £8,000 - £65,000 = £573,000 (if my maths is right). It would be nice if the value of the house was increased by £50,000.
Once you have inherited the property make your wife a joint owner before you sell, This way you will get a further £11,000 annual exempt amount and any of your wife's basic rate band at 18% before you have to pay at 28%. Your sister could do this too if she has either a spouce or civil partner..

Biggidy

Thanks for the reply, I say unfortunately, but my wife is a high rate tax payer.

zygurat789

Biggidy wrote: »

Thanks for the reply, I say unfortunately, but my wife is a high rate tax payer.

You still save £3,080.
How about a big pension contribution?

booksurr

Biggidy wrote: »

Hi booksurr,

My Father was a free spirit and didnt really bother himself with financial stuff, hence why there was no will.


He had no car or life insurance. The contents of the house were minimal and anything of value were a few electrical goods I bought him for Xmas and his birthday.


Regarding the debt against the estate, will this benefit the IHT threshold or reduce the CGT as there would be less profit?

sadly parents can be like that! My father also died intestate, sorting out his estate was a "useful" diversion at the time but also a small nightmare as his was somewhat more than yours

as i said it will reduce the value of the estate , it will NOT reduce the value of the house for the purposes of subsequently calculating the CGT

as an example using your figures:
For IHT purposes, value of estate:
property: £630k
savings: £8k
contents/possessions: £0.5k (HMRC readily accept a negligible value for house contents at date of death)
sub total: £638,500
less estate debts: £60k
less cost of funeral: £3k (?)
net value of estate for IHT: £575,500

NO IHT payable

For CGT purposes: tax due
gross gain: £850k - £630K (subject to HMRC's acceptance of this figure) - costs of selling (EA and legal fees) say 10k = £210K

your share £105,000 less personal allowance 11,000 = 94,000

as an example let us say your have an annual salary of £30,000. Your total "income" for CGT purposes is therefore 124,000 so well in excess of the £41,865 threshold above which 28% CGT rate starts so you would pay CGT as follows:
@18%: 41,865 - 30,000 = 11,865 x 18% = 2,135
@28%: 94,000 - 11,865 = 82,135 x 28% = 22,997
total CGT payable based on a 30K salary = £25,132

NOTE: your sister's CGT bill will be different to yours since I doubt her salary is the same as yours?

Biggidy

Thanks for this answer, my salary is £31k and funeral was £5k, so this is a great insight into what I may have to pay

Biggidy

Zygurat789,

I dont really believe in the merit of pensions.

zygurat789

Biggidy wrote: »

Zygurat789,

I dont really believe in the merit of pensions.

Not even if HMRC pay two thirds of what you do into it?

This, of course, is the thought of someone who is young. You will grow older. You will worry about future income when you feel you can't work any more and you will wish you had a bigger pension. Just like millions before you. Honest.

getmore4less

Definately worth reviewing the house value at DOD.

booksurr

Biggidy wrote: »

We are applying to have the thresholds of my Father(£325000) and my Mother (£325000). Who passed away when I was younger, put together so the maximum threshold for inheritance tax will be £650000.

PS

I assume your mother died intestate also?

in which case the full 325,000 of her allowance may not be available for transfer since some of it may have been used up according to the intestacy rules

the big figure will be how did mother and father own the house - if it was all in his name then its not an issue since the value of the house is not part of her estate. Similarly if mother owned as joint tenant with dad then it is also not part of her estate BUT if mother owned as tenant in common then her share will pass under the intestacy rules meaning only 250k goes to your father and the rest will be split between her children

so if at the date of your mothers death her estate was more than £250k then there may not be 650k of IHT allowance now available as the combined total of mother and father's allowances

booksurr

getmore4less wrote: »

Definately worth reviewing the house value at DOD.

LOL - that is why HMRC ascertain the value by referring the matter to the official valuer (the VOA - Valuation Office Agency) for a definitive figure and if the VOA do not agree with yours then tough, HMRC use the VOA figure and have the final say