CGT with inheritance [cgt] [captial gains]

gnekelfihg

Hi,
mum passed in Jul 2013 leaving behind the family home to my brother and I.

My brother lives in the home and has done for a few years. I live in rented accommodation and don't own any other property.

We have recently agreed a sale for the house at £385k so there should be just over a year's worth of capital gains at ~ 6% (although probate form has inaccurate value of £330k from Jul 2013).

I couldn't find a similar-enough situation in the existing threads to know what the tax costs are likely to be - any advice appreciated.

Thanks

**** UPDATE in post 9 ****

Spidernick

The probate value at your mother's death will be your 'cost' for Capital Gains Tax (CGT) purposes. The difference between this and the sale proceeds (less estate agent's fees, solicitor's fees, etc.) is the overall gain. You then halve this to show the gain for each of you and your brother.

Your bother will have no CGT to pay by the looks of it, as it has been his main residence for CGT purposes based on what you have said. However, your half will potentially be liable to CGT, but assuming you have no other gains in the year you can take the annual exemption from this, which is currently £11,000. If you are saying the property has gone up by 6% since your mother's death, then it looks like you will have little if any CGT to pay personally once you allow for the costs of sale, as above.

If there is a residual amount to tax after all of the above then this will be at either 18% or 28% depending on whether you are a basic-rate or higher/additional rate taxpayer for income tax purposes.

Hope this helps.

gnekelfihg

Thanks. The estimated figure on the probate is too low by at least £10k. We were so far under the IHT threshold that it didn't seem important at the time. We made a best estimate but didn't get any independent valuations. Will this cause any issue?

zygurat789

gnekelfihg wrote: »

Thanks. The estimated figure on the probate is too low by at least £10k. We were so far under the IHT threshold that it didn't seem important at the time. We made a best estimate but didn't get any independent valuations. Will this cause any issue?

You don't give any figures to enable us to answer your query but it looks like your probate value was £350k and you sopld for £385k giving a gain of £35k less expenses (say) £5k leaving a chargeable amount of £30k split 50:50 so your share would be £15k less £11k exempt amount, £4k taxable.
If you have £4k left of the basic rate band it will be £800 if you are on HR tax then £1,600 or anything in between if your income is in between.

gnekelfihg

but when we came to sell the property we found out the probate value was wrong (330-340 cant recall atm). To be fair, when we did get valuations before selling they were all over the place as well. However, house price inflation in the area is 5-6% per year, not 16%.

booksurr

gnekelfihg wrote: »

but when we came to sell the property we found out the probate value was wrong (330-340 cant recall atm). To be fair, when we did get valuations before selling they were all over the place as well. However, house price inflation in the area is 5-6% per year, not 16%.

as no IHT was actually paid at the time HMRC have not yet formally accepted ("ascertained") that the probate value was correct therefore you will not know your actual gross gain until you submit your figures to HMRC and they undertake their own valuation

HMRC's decision is the one that counts, not whatever you say was the probate value. HMRC will use the Gov't Valuation Office Agency to undertake a professional valuation of the property as at the date of death - the risk you bear in this is that the VOA will be unlikely to come out to physically inspect it so their figure will be based on averages and assumptions so may or may not be based on 6% price inflation over 1 year....

if you want to get a warning of what figures they will use, HMRC allow you to submit your probate and sales valuation to them ahead of you submitting the formal tax return. HMRC will then do the valuation and let you know what figure the VOA says, you do this on form CG 34
http://search.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=IFX-GtILkLw&formId=3168

Note that HMRC require several months to process this form so do not delay given you have "only" until 31 Jan 2016 to submit the tax return (assuming the sale took place after 6 April 2014)

Savvy_Sue

Going back to the probate value, how much IHT-free did your mother have in her estate?

What I mean is, if Dad pre-deceased her, and was married to her at the time of her death, her IHT allowance could be doubled to £650k.

Am I making sense?

I know it doesn't affect the CGT liability which has been well outlined already, but it may ease the worries over the valuation for probate.

gnekelfihg

yes, the IHT allowance was £650k so I'm not worried on that front.

Thanks all for your responses.

gnekelfihg

UPDATE:

Having some problems on this front as HMRC are taking the house value from the probate form (£330k) and have refused a C4 corrective account (reasons unknown). Adjusting the value to be in line with actual property inflation would not affect IHT thresholds..

Do I have any avenues open to me? Booksurr said that Gov't Valuation Office Agency should be used but this does not seem to be the case.

booksurr

gnekelfihg wrote: »

UPDATE:

Having some problems on this front as HMRC are taking the house value from the probate form (£330k) and have refused a C4 corrective account (reasons unknown). Adjusting the value to be in line with actual property inflation would not affect IHT thresholds..

Do I have any avenues open to me? Booksurr said that Gov't Valuation Office Agency should be used but this does not seem to be the case.

patently HMRC will use whichever valuation gives the highest tax payable. In this case as no IHT was paid it stands to reason they "prefer" to use your probate value as it is "low" and therefore maximises the capital gain.

if you disagree with their valuation then your only option is to fight them using your own professional valuation adviser experienced in such cases, which will of course be expensive and may end up with a full blown dispute before a formal Valuation Tribunal

http://www.hmrc.gov.uk/manuals/cgmanual/CG16230.htm
http://www.hmrc.gov.uk/manuals/cgmanual/CG16233.htm

MichelleUK

gnekelfihg wrote: »

UPDATE:

Having some problems on this front as HMRC are taking the house value from the probate form (£330k) and have refused a C4 corrective account (reasons unknown). Adjusting the value to be in line with actual property inflation would not affect IHT thresholds..

Do I have any avenues open to me? Booksurr said that Gov't Valuation Office Agency should be used but this does not seem to be the case.

It is a little difficult to comment without seeing the exact wording of the letter that you have received from HMRC, but my immediate thoughts are:

1. A C4 corrective return is only used when you need to adjust the amount of IHT due on an estate and not to change the valuations of the estate for estates that do not have to pay IHT. Rather than HMRC having 'refused' your C4, I would think that they are in fact saying that they do not need one for IHT purposes.

2. Have a read of the HMRC guide for completing the CGT pages, especially page CGN10, as this gives details of how to value the house:

http://www.hmrc.gov.uk/worksheets/sa108-notes.pdf

There seems to be two choices:

1. Once the house house sale is completed, complete the CG34 (as described by booksurr) and wait for HMRC to agree a valuation.

2. Complete the tax return capital gains tax pages, including your computation, and wait and see if HMRC challenge the valuation. They have a very long time to challenge, so you may be kept in limbo for years.

Personally, I would complete the CG34. You have ages until you actually need to report any gain (assume sale will be on your 2014/15 return) , so you may as well get HMRC to agree a valuation and not be left in limbo.