capital gains tax

g6jns_2

charlie2015 wrote: »

my father died on the 17.2.14 house put on market early april mid april sold to a private buyer 1st week in may. my sister told me they had better offers than £625000 but they had gone for cash offer. I am beginning to think they rushed probate and did not revalue. what I cannot understand why the solicitor sat there and let this go on who is liable here

It really comes down to what you can prove. If you can prove that the house was sold for less than the open market value then they executors/personal representatives would be liable for the losses. This may not be easy to prove.

getmore4less

Check out the buyer and see if the property has been sold again.

Have a chat with the estate agent they won't be happy looks like they were used.

Ask for the valuations used for probate.

NordicNoir

Charlie2015, please can you clarify who has asked you to pay some CGT? Have you already had your share of the estate in cash and have now been informed that you will need to pay some CGT to HMRC, after you thought that there was nothing else to pay? Have the solicitors written to you and said "include this gain on your Tax return"?

Now that you have mentioned when your father died, it does appear that the probate house value is wrong. If an estate has to pay IHT, there is a form that you can complete to go back and adjust the value of a house used in the original probate, that adjusts the IHT. There is no such form for an estate that is outside of the need to pay IHT, as it is irrelevant. Even if the house had been included at the higher value, it appears that no IHT would have been due anyway. So, IHT does not appear to be an issue here.

HMRC, with their "IHT" hat on, are not bothered about errors on the probate forms if the result still is that no IHT is due. They are only concerned if IHT then becomes due.

Potentially, any change in the market value at the date of death and the date that it is sold is subject to CGT. Whether the estate needs to pay this, or the beneficiaries themselves, depends on whether HMRC considers that the residue of the estate has been ascertained at the date of sale. This can be quite technical ( see: http://www.hmrc.gov.uk/manuals/cgmanual/CG30700+.htm ). In your case it appears that your fathers estate was only the house and a small amount of cash, so it does look as if the residue would have been ascertained and any CGT would be payable by the beneficiaries directly.

Now, there has been an error in the valuation used for the date of death and it is wrong for the solicitor to blindly follow it with an "oh well" attitude. The probate value that has been used by the solicitor to calculate the CGT should be swapped with the correct market value on the date of your fathers death. To find this value, you can complete a CG34 form on the HMRC website (https://www.gov.uk/government/publications/sav-post-transaction-valuation-checks-for-capital-gains-cg34) and they will come back to you with a value. This value can then be used to calculate any capital gains that is due. Bearing in mind that the gain will be spread amongst 5 of you and that you may have not used your CGT allowance for the tax year, it is quite possible that there will be no CGT to pay.

Of course, getting the PR's and the solicitors to actually do this is another matter all together. If they are adamant that they have done the right thing (and professional pig headedness often gets in the way), just use the correct figures on your tax return regardless of what the solicitor or PR's say.

The other issue, where the PR's have accepted a low offer, is more difficult. You would need to get legal advice about challenging them, especially as they received higher offers and refused them. Think carefully about taking this route though - it will probably be expensive and you may fall out with your family - decide whether it is worth it to you.

charlie2015

michelle uk the solicitor and PRS have both told me that there probably will be CGT to pay their is no help from PRS at all 2 waste of time letters in 13 months last letter about year ago one letter said we would probably have to pay CGT according to solicitor this week the PRS accountant is trying to fight CGT issue this has been going on for about 9 months I have a gut feeling they may be fighting possible penaltys I have received most of the money solicitor is holding about £ 45,000 nobody has asked me for any tax up till now but expecting this to happen I wrote to solicitor this week to say as we all had a CGT threshold what was the problem his reply was I have no involvement in this aspect of the estate so am unable to comment why could they just not have given true figure in the first place many thanks for help everyone

Keep_pedalling

If you have only received cash then you have no CG to pay, but the estate might have which is why you have received interim payments and the solicitor is holding back the £45k.

G6JNS

charlie2015 wrote: »

michelle uk the solicitor and PRS have both told me that there probably will be CGT to pay their is no help from PRS at all 2 waste of time letters in 13 months last letter about year ago one letter said we would probably have to pay CGT according to solicitor this week the PRS accountant is trying to fight CGT issue this has been going on for about 9 months I have a gut feeling they may be fighting possible penaltys I have received most of the money solicitor is holding about £ 45,000 nobody has asked me for any tax up till now but expecting this to happen I wrote to solicitor this week to say as we all had a CGT threshold what was the problem his reply was I have no involvement in this aspect of the estate so am unable to comment why could they just not have given true figure in the first place many thanks for help everyone

If you only received cash there can be no CGT to pay. End of story! The solicitor needs to be told very strongly to stop prevaricating. If need be a formal complaint using the firm's complaints procedure seems to be in order. If the executors/personal representatives have messed things up they, and they alone are responsible for paying the beneficiaries for any losses or costs incurred. The solicitor might be liable to them if he has given bad advice. Don't let them get away with it.

Crabapple

G6JNS wrote: »

If you only received cash there can be no CGT to pay. End of story!

The cash is the proceeds of sale of the property so there is a CGT issue here.

It sounds like the Solicitor is washing his hands of the tax issue, which is not appropriate. The Executors should have established the best course of action for tax purposes, whether that be submitting the lower value for IHT and deal with CGT, or putting the sale figure in the IHT papers (although given how quickly it was between death and sale it was it really should have been IHT).

If they needed specialist advice on this issue it should have been obtained before now.

I agree with the poster above about the sale as well. Executors have a duty to get the best value for the beneficiaries. It might have been the case that this cash private sale was the best option but you have no way of knowing this. Offers coming in via the Estate Agent may have been much better and if the private sale was done just to save time and lost you money then this is not right.

G6JNS

If the beneficiary only received his share of the estate in cash from the executors/personal represenatives please explain how he can be liable for any CGT on it? The executors/personal representatives are personally liable to the beneficiaries if they have screwed things up.

NordicNoir

G6JNS wrote: »

If the beneficiary only received his share of the estate in cash from the executors/personal representatives please explain how he can be liable for any CGT on it? The executors/personal representatives are personally liable to the beneficiaries if they have screwed things up.

The Executors/PR's have potentially two ways of selling the house:

The first method means that the estate pays the CGT (less its single CGT allowance, at the higher PR's tax rate).

The second method becomes available as the period of administration progresses. In the eyes of HMRC the residual is "ascertained" (please see the link in my previous reply) At this point is it considered that the house belongs to the beneficiaries (even though it has not been officially recognised at the Land Registry). The executors are then selling the house as "bare trustees" on behalf of the beneficiaries. Any capital gain belongs to the beneficiaries but the executors do not withold any CGT - it is not their job as a bare trustee. It is the the responsibility of the beneficiary to declare to HMRC that they have a chargeable gain.

Obviously, HMRC prefer the former route and beneficiaries prefer the latter. The point at which the residue is ascertained can be hard to figure out and may be why the PR's are taking so long, making sure that they do not release funds that they should have paid directly to HMRC.

One way that an executor can make sure that the beneficiarys have the benefit of their CGT allowances is to "appropriate" the house to the beneficiarys before it is sold, to take away any chance of HMRC saying they they doe not consider that the residue has been ascertained. A good solicitor would draw up the paperwork for this appropriation as a matter of good planning during their work.

As an example, using the second method, the PR's release the whole amount of the gain to the beneficiaries, as it is not up to them to decide on the beneficiaries personal tax situation. They may have other CGT losses to offset or they may pay the CGT at the higher rate as they are a higher rate tax payer. It is none of the PR's business - it is between the beneficiary and HMRC.

From the details that the OP has given, it sounds as though the PR's have taken on the services of a solicitor and an independent accountant rather than a firm that can handle both. This is probably a big cause of the delay and the accountant, possibly inexperienced in CGT and IHT, is dithering to cover all eventualities. Once the administration is complete and the accounts have been prepared, the OP will have a much better idea as to what has really gone on, as there are too many unknowns at the moment to offer any definite advice.

Note: I have used PR's (personal representitives) and executors interchangeably, but for the purposes of this post, they should be considered the same thing.

g6jns_2

Thanks for that. Reading the thread again it seems the executors/PRS sold the house before probate and undervalued it. Surely the execs are responsible for any losses the beneficiaries incur because of their actions? The beneficiaries were not involved in any way nor did they authorise the execs to act on their behalf. It would be quite inequitable for the beneficiries to be penalised for something they have zero responsibility for.