CGT and Inheritance Tax on property

getmore4less

Biggidy wrote: »

My Father re-mortgaged his house to give my Sister £60k for a house deposit, he wrote a letter saying this was a gift (not a loan), although my Sister was and is paying the bank back.

If she has been paying the interest that would have been taxable income for your father.

zygurat789

Biggidy wrote: »

My Father re-mortgaged his house to give my Sister £60k for a house deposit, he wrote a letter saying this was a gift (not a loan), although my Sister was and is paying the bank back.

This is a difficult situation for me, because it will affect my CGT on the property - which is unfair to myself.

When my Father re-mortgaged his house it was valued at £525k and my Sister took £60k. Could I then argue that she has already taken a % of the property (estate) and I am due a higher percentage?

You have still not answered the question definitively. I assume from your answer that there is a loan of £60k due by the estate of your late father to a bank. If this is so then it reduces the value of the estate for IHT.
This gives scope for the value of the house to be reassessed upwards to a value that would still leave the estate not paying IHT.
The value of the house for IHT is the starting point for CGT so a higher IHT value means a lower gain.
I understand your
dificult situation as regards your sister but how do you see it costing you in CGT?
Your father didn't give your sister a % of the house it was £60K, I would not have thought that your argument had any merit.
He gave her £60k as a gift because she did not have as much as you, I can understand that, especially if she is not married. The fact that she has made repayments of this gift means you will benefit.

getmore4less

zygurat789 wrote: »

You have still not answered the question definitively. I assume from your answer that there is a loan of £60k due by the estate of your late father to a bank. If this is so then it reduces the value of the estate for IHT.

There is a £60k loan or gift that gets added back in for IHT


This is IHT neutral with the mortgage debt.

booksurr

zygurat789 wrote: »

This gives scope for the value of the house to be reassessed upwards to a value that would still leave the estate not paying IHT.

you have ignored that the "gift" or the "loan" to sister has to be added back into the estate so cancels out the father's mortgage liability to the bank, leaving no scope to reassess the house value

Biggidy

zygurat789 wrote: »

The value of the house for IHT is the starting point for CGT so a higher IHT value means a lower gain.
I understand your dificult situation as regards your sister but how do you see it costing you in CGT?
.

Ok, I see your point,Thanks! It is the value of the house we have submitted for for IHT where CGT will then begin.

The £60k will not affect the value of the house but will help reduce the value of the estate for IHT.

(I was getting confused, I thought the 60k would reduce the value of the house)


So basically, I need the district valuer to increase the value of the house for IHT so we have less CGT to pay, remaining within our IHT limit (we assume will be £650k)?

Biggidy

zygurat789 wrote: »

Your father didn't give your sister a % of the house it was £60K, I would not have thought that your argument had any merit.
He gave her £60k as a gift because she did not have as much as you, I can understand that, especially if she is not married. The fact that she has made repayments of this gift means you will benefit.

Yeah, I will not pursue this, just wanted opinions on it and if I had judged it correctly. We are trying to divide things fairly, but it is confusing with the £60k gift/loan.

getmore4less

Biggidy wrote: »

Ok, I see your point,Thanks! It is the value of the house we have submitted for for IHT where CGT will then begin.

The £60k will not affect the value of the house but will help reduce the value of the estate for IHT.

(I was getting confused, I thought the 60k would reduce the value of the house)


So basically, I need the district valuer to increase the value of the house for IHT so we have less CGT to pay?

No it won't, as it was a gift/loan it gets added back in.

jimmo

As far as I can tell you have resolved all the known issues affecting IHT except the probate value.
In making the IHT Self Assessment Return the administrator(s) will need to declare the probate value of the property and it will then be open to the IHT office to accept the Return or Enquire into it.
The IHT office will then seek the opinion of District Valuer but the question will be whether the declared probate value is so seriously understated that there is a significant impact on the amount of Inheritance Tax payable.
If the District Valuer’s answer is “No” then the IHT Return will be accepted.
The declared probate value is only ascertained if IHT is payable.
Moving onto Capital Gains if the probate value has been ascertained then that value is set in stone for CGT purposes.
If it hasn’t been ascertained the way is open for the CGT office to look at the probate value to test whether it has been overstated and the CGT office will ask the District Valuer to consider that.
Ideally you will get the probate value spot on in the first place but if you don’t the taxman has 2 potential bites at the cherry.
Here, I am afraid, the fact that there was an outstanding (re)mortgage at the date of death could have a significant impact on who is chargeable to CGT.
The administrator has a legal obligation to satisfy the debts of the deceased before distributing the residue of the estate to the beneficiaries.
http://www.hmrc.gov.uk/manuals/cgmanual/CG30250.htm
Therefore in this case the administrator needs to sell the property in order to clear the (re)mortgage before distributing the residue to the beneficiaries.
It then follows that it is the administrator who is liable to CGT so a single annual exempt amount of £11,000 with the balance of the gain chargeable at 28%.

Biggidy

So basically, the remortgage amount of £60k has to be paid back to the bank before the house is passed into our names and we can sell?

jimmo

No. Unless there’s something else you haven’t yet shared with us, the estate (or the administrator) simply doesn’t have £60k to pay back to the bank.
The estate therefore has to sell the house, pay the bank, pay the CGT bill and pass the remaining money to the beneficiaries.