Reduce CGT on inherited house by transfer to other family to use their allowance

benawhile

Hi
The title describes the basics. Doing some basic arithmetic I worked out that for our family home, valued for probate at 600K and saleable now at 700K, will incurr about £21,000 CGT if sold as part of the estate, but if we go to the trouble of transferring it to the names of myself and all three siblings, we will each be able to use the £11,100 allowance, and as basic rate taxpayers will only incurr £2,500 CGT each.
The will states "My trustees shall hold my residuary estate on trust either to retain it or sell it and then to divide it or its proceeds equally among my children...." which to me implies we have the option of retaining and transferring to all 4 of our names to do what we want with.
The funny thing is I haven't found anyone else with experience of this situation, even the lady at the Land Registry said she hadn't heard of it.
I've done a series of calculations taking into account my income, the two different CGT rates of 18 and 28%. The saving varies according to the theoretical price the house will sell at but a differential of £100,000 at this price gives the best result. I know there will be paperwork involved, and proof of ID for the non-executors. Does anyone see a catch, or have a comment to make from experience or knowledge?

laticsforlife

If it's sold as part of the estate, then isn't that then IHT on the estate not CGT on you?


As for the second part, if you inherit and don't sell till later, then I see it as each having gained 1/4 of the difference between probate value and sale value, which would mean 4x AEA's

Keep_pedalling

How long ago did the owner die? An increase of that size indicate that either it had taking a very long time to sort out the estate or that the house was undervalued originally. If it's the latter then HMRC are likely to challenge the original valuation and will be demanding a chunk of IHT possibly accompanied by a fine.

xylophone

http://www.wilkinskennedy.com/services/tax/tax-factor/what-to-do-about-capital-gains-tax-when-someone-dies/

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323671/hs282.pdf

I am not quite sure about your interpretation of the wording of the will.

It could mean that if the house is retained, it is retained in trust for the beneficiaries, but if not, the house should be sold and the proceeds distributed? If the latter were the case, would there be only one CGT allowance?

Would it be worth clarifying the situation before you take any steps to sell the house?

benawhile

Laticsforlife: Well, we've paid our IHT, although waiting to hear confirmation from them of our self assessment. But the CGT is on the difference between that and the subsequent sale price. What is an AEA?

booksurr

aea = annual exempt amount ie your CGT personal allowance 11,100

as xylophone says you legal advice from a solicitor as to:

either
the executors are selling as bare trustees of the beneficiaries so all 4 of you would be taxed on your respective shares so each gets their own aea since the property belongs to the beneficiaries from date of death so they can retain or sell in their own name
or
the executors are required by the will to sell the property and only then distribute the proceeds to the beneficiaries. In that case there is only one aea , that of the estate itself

benawhile

Keep Pedalling: The owner died September 2015. I am aware that unfortunately we may have undervalued and may have to face consequences, am willing to discuss this as a separate issue if necessary. I took advice on the valuation to go for. We haven't put the house in the market yet.

Xylophone, thanks for the links, I think I had already seen them. Yes, if the latter were the case, there would be only one CGT allowance. I was hoping that would be clear in my first paragraph of the original post.

Keep_pedalling

benawhile wrote: »

Keep Pedalling: The owner died September 2015. I am aware that unfortunately we may have undervalued and may have to face consequences, am willing to discuss this as a separate issue if necessary. I took advice on the valuation to go for. We haven't put the house in the market.

Sounds like you had bad advice. Based on what you have said here HMRC are going more interested in in additional IHT than CGT. Sounds like you now need some professional advice on how to proceed.

benawhile

Keep pedalling: I had bad advice, I am getting professional advice, I know they are going to be interested in IHT because it's 40% whereas CGT is 18%, but I am interested in reducing CGT so if you are going to answer, please don't ignore the subject of this thread that I posted. I am seeking opinion about adding other inheritors names to the deeds to reduce CGT. I realise that the more IHT raise the death value then the less I will have to worry about CGT. I do appreciate your warnings and would be happy to discuss elsewhere, as I said.

booksurr

you have been given the answer, you need a professional legal opinion as to the exact meaning of the will in relation to whether the executors are selling as bare trustees or not. If they are then the CGT liability must be split 4 ways as there is no choice over it since there are 4 beneficiaries. I doubt anyone on here can (is willing to) give legal advice as to the nature of the will trust which very obviously does exist based on what you have quoted

Keep_pedalling

benawhile wrote: »

Keep pedalling: I had bad advice, I am getting professional advice, I know they are going to be interested in IHT because it's 40% whereas CGT is 18%, but I am interested in reducing CGT so if you are going to answer, please don't ignore the subject of this thread that I posted. I am seeking opinion about adding other inheritors names to the deeds to reduce CGT. I realise that the more IHT raise the death value then the less I will have to worry about CGT. I do appreciate your warnings and would be happy to discuss elsewhere, as I said.

I was not ignoring the question, you cannot seperate the two issues. If as it appears IHT was underestimate there will be no CGT to pay because your original valuation is going to have to be revised upwards.