CGT with inheritance [cgt] [captial gains]

gnekelfihg

much obliged, zygurat789

booksurr

gnekelfihg wrote: »

Thanks!

This makes it sound like the disposal of the house should be goverend by individual cgt rules, and therefore subject to 2x allowances and PRR.

- if the will directed that the property be sold and the proceeds divided between you and your brother then it is the executor who is the vendor and there is only one CGT allowance (the "estate" personal allowance which is £5,500). Your brother's claim to PPR would then be irrelevant.

- on the other hand, if the will directed that you and your brother "inherit" the property (ie become owners) then the fact you may not yet be listed on the deeds as the legal owners is irrelevant as you each have the beneficial interest in the property and CGT is based on benefical not legal ownership. As beneficiaries your gain is calculated from value at the date of death - ie the probate value. In that case you each have a CGT personal allowance of £11,000, plus your brother also has a claim to PPR since he has lived in the property since date of death. You have no claim to PPR and are liable for CGT

gnekelfihg

Thank you! Yes, my brother and I inherited the property - there was no instruction for the property to be sold.

gnekelfihg

The solicitor has said that the property was sold as part of the estate. I know there was no instruction for it to be done like this. I verified that everything was ok for us to sell the house after probate and she said should could handle the house sale when we asked for conveyancing recommendation.

If the current procedure continues as it seems it will do, it looks to be costing ~£10k in cgt needlessly due to procedural error of probate solicitor not passing ownership of the property correctly.

What are my options in that eventuality?

NordicNoir

gnekelfihg wrote: »

Thank you! Yes, my brother and I inherited the property - there was no instruction for the property to be sold.

Just to clarify, did the Will say "I leave my house to A & B" or "I leave everything to A & B" ? From an earlier post you mentioned that the house has had an offer but it has not yet been sold, as in completed, is this correct?

Is the solicitor actually the Executor or are you?

If the house was left to you and your brother specifically, the gains are attributable to you and your brother and should not be declared on an estate tax return (that the solicitor, if they are Executor, may need to complete) but on your own.

If the house was not left specifically, it is part of the residual and the tax situation can be a little complex (relating to when it is considered that the residue is ascertained) . In this case, to be safe, you can have the house 'appropriated' to you and your brother. What this means is that the beneficial ownership of the house is passed to you both without doing a legal transfer at the Land Registry. This is done via a 'Deed of Appropriation'. Then the situation, CGT wise, would be the same as if the house had been specifically left to you in the will.

Ask the solicitor to draw up a Deed of Appropriation for you, they will then be acting as your bare trustees in the sale and they must not show the gain on the Estate tax return.

If the solicitor says that this is not possible you really should kick up a fuss. Not all solicitors are competent to administer an estate and it sounds as if yours is having trouble. Are they with a large firm?

*** this reply does assume that the house is not being sold to pay any liabilities of the estate and that proceeds are only going to you and your brother ***

Incidentally, you mentioned a C4 corrective return in a previous post - was this something the solicitor suggested/completed for you?

gnekelfihg

the will said everything goes to my father (already deceased), and failing that to me & my brother. My brother and I were joint executors.

There were no specifics. The house sale completed in early Oct.

The solicitors are not a big company. They dealt with my fathers probate and nothing went wrong there.

Can the deed of appropriation be done even though the sale has already completed?

The C4 form was something they did off their own initiative, but didn't tell me they'd done it and it had been refused. I found out after talking to hmrc who suggested it, and then I suggested it to my solicitor who gave me the update.

NordicNoir

gnekelfihg wrote: »

the will said everything goes to my father (already deceased), and failing that to me & my brother. My brother and I were joint executors.

There were no specifics. The house sale completed in early Oct.

The solicitors are not a big company. They dealt with my fathers probate and nothing went wrong there.

Can the deed of appropriation be done even though the sale has already completed?

The C4 form was something they did off their own initiative, but didn't tell me they'd done it and it had been refused. I found out after talking to hmrc who suggested it, and then I suggested it to my solicitor who gave me the update.

Unfortunately the extra information makes a big difference. It is too late, now that the house is sold, to do the deed of appropriation.

Read this, which explains about the point at which the CGT responsibility passes to the beneficiary:

http://www.hmrc.gov.uk/manuals/cgmanual/cg30750.htm

Your only hope now seems to be to show that the "residue was ascertained" before the house was sold, then the CGT gains would be yours and not the estate. The period of administration has gone on a long time, so there is a good chance that the "residue was ascertained" before the sale and your solicitor should be able to tell you this.

The fact that the solicitor completed a C4 when there was no IHT liability really does make me question their competence; this would make me doubt their ability in any other taxation matters of the estate. A good solicitor dealing with estates will work alongside a tax accountant if they do not have tax expertise themselves. One of the first tasks would be to make sure that any CGT consequences were minimised and they should have suggested the Deed of Appropriation.

Ask your solicitor when the "residue was ascertained" and if they do not have a clue it may be an idea to complain to a partner or find another solicitor (one that is a STEP member would be best).

If you can bear it, read the HMRC section on CGT and Estates as it will fill in the gaps a bit (although a bit technical in places!)

http://www.hmrc.gov.uk/manuals/cgmanual/CG30200c.htm

NordicNoir

Just to follow on from my previous two posts (I should not reply so late at night!) can you clarify - did the house have to be sold to enable all of the liabilities of the estate to be paid? This is to check whether it was was ever feasible that the house could have been appropriated to you and your brother.

This would make a difference as to who the CGT should be assessed on.

gnekelfihg

No, there was no need for the house to be sold in order to settle the estate liabilities.

This is the residue question response from my solicitor:
[FONT=&quot]The residue would have been ascertained when the house was sold and the liabilities (including Estate Agents fees etc) were paid[/FONT]

purple_haze

[FONT=&quot]The solicitor is wrong. The residue is ascertained when the assets have been identified and liabilities settled. The house fell into residue. By the time of its sale, the executor was holding as bare trustee for the residuary beneficiaries. See HMRC’s Capital Gains manual here.[/FONT]