House passed to children...Tax implication by selling it after death of parent?

KevinM

Hi,

I am looking for a little advice please regarding the selling of a second home, that has been transferred over from a parent to children, and then looking to sell after the parent passes away...

it looks a fairly complex situation, in regards to tax liability, but if I could give some basic, salient points please, and see what the best avenue to go down is...

Firstly, the house ownership was transferred by the parent into his 3 childrens names 4 years ago, owned fully outright and with no mortgage. Plus this is each of the children's second house, and neither lived in it for any of the 4 years it was in their names...

The parent was elderly, and there was a chance that he would need to go into a care home at some point...

The house transfer was not done to avoid care home fees, as he had sufficient savings and personal pension to pay for the care home himself, but it was transferred into the children's names whilst he was still of sound mind (he was suffering from early signs of dementia)...

After the house ownership transfer, he never paid rent, but he did pay his own bills...heating, electricity, telephone, food etc

A year ago he had to move into a care home, as he was not able to look after himself any longer, and he paid his care home bills himself from his own money (savings and private pension)...

He sadly passed away a couple of weeks ago, and now the 3 children are looking to sell the house...

The house is only valued at about £200,000, so well within a standard IHT threshold, and his savings had been whittled down to about £30,000, so total estate value of less than £250,000, so I don't think IHT will come into this, but could someone shed some light onto exactly what CGT each child would be liable for please?

Please correct me if I am wrong (and probably am) but it looks as if the children would be liable for CGT on the increase in value of what the property was worth when transferred into the children's names, 4 years ago, and the value when sold now...

Is that (very basically) it?

I think there could be mitigations on this tax bill for any money spent on work carried out on the house in these past 4 years, but I can look into that later...

The house had laid empty for the year that the parent was in the care home, and was simply kept habitable with weekly visits to make sure everything was OK, garden kept tidy, minor work carried out etc...but nobody per se lived in it...

If it is correct that CGT would be paid on the increase in value from the time it was transferred to the sale time, how would I determine the value of the property at the time of transfer to the children, in order to correctly determine the increase in value, and hence work out the CGT?

No one (and we went via a solicitor) mentioned about getting the house valued when it was transferred...

Anyway, I hope that gets all of the basic points across, and I would be very grateful for some advice...(I'll probably telephone HMRC next week, but I wanted to get an idea in my head first before I telephoned them)

Many thanks,
Kevin

G_M

KevinM wrote: »

Firstly, the house ownership was transferred by the parent into his 3 childrens names 4 years ago,....this is each of the children's second house, and neither lived in it for any of the 4 years it was in their names...
1) Did money change hands?At market value?
Assuming not, then it was a gift, subject to Inheritance Tax if the donor dies within 7 years
2) Was it the donor's primary residence up till the transfer? If not, then Capiatl Gains Tax may have been due at that point. The fact the Donor later died does not remove that CGT liability - the Estate should declare/pay it.

The parent was elderly, and there was a chance that he would need to go into a care home at some point...

After the house ownership transfer, he never paid rent, but he did pay his own bills...heating, electricity, telephone, food etc
Ah, so the Donor continued to live in the property? In that case it was a 'Gift with Reservation'. It remains within the Estate for Inheritance Tax Purposes however long the Donor survives.

A year ago he had to move into a care home, as he was not able to look after himself any longer, and he paid his care home bills himself from his own money (savings and private pension)...
3) What happened to the property?Left empty? Let out?

He sadly passed away a couple of weeks ago, and now the 3 children are looking to sell the house...

The house is only valued at about £200,000, so well within a standard IHT threshold, and his savings had been whittled down to about £30,000, so total estate value of less than £250,000, so I don't think IHT will come into this,
As you say - if the total Estate including the house is belowe the IHT threshold, then there's no IHT to pay
but could someone shed some light onto exactly what CGT each child would be liable for please?

Please correct me if I am wrong (and probably am) but it looks as if the children would be liable for CGT on the increase in value of what the property was worth when transferred into the children's names, 4 years ago, and the value when sold now...
correct.
4) do you know the value 4 yeats ago when the transfer took place?
If, say, £100,000 and it now sells for £200,000, that is a capital gain of £33,333 for each child.
However you can deduct each person's selling costs, improvements, as well as the annoal allowance. Tax will be charged at either 18% or 28%, or a combination depending on annualincome. see calculator below

The house had laid empty for the year that the parent was in the care home, and was simply kept habitable with weekly visits to make sure everything was OK, garden kept tidy, minor work carried out etc...but nobody per se lived in it...
Ah. Ok. Hope council tax and insurance have been kept up.......?

If it is correct that CGT would be paid on the increase in value from the time it was transferred to the sale time, how would I determine the value of the property at the time of transfer to the children, in order to correctly determine the increase in value, and hence work out the CGT?
Tht should have been done at the time.
If not, get an RICS surveyor to give you a valuation for 4 years ago,

• Go to HMRC calculator here

Do not enter values for the house, enter the values for each individual's share (1/3rd). In this context, 'property' means what that individual owned, not property as in the house.


Good luck phoning HMRC :rotfl:

00ec25

If i am reading the info correctly the salients points appear to be:

1. It was the main/only home of the parent and they lived in it as such until the date they moved into a care home, as such it remained their home on paper even though they were no longer living in it. G_M has become confused with the reference to second home... no CGT liability arises for the estate given there is a disregard available for people who live in care homes and leave their own empty. Crucially however, the gift of ownership was a Gift with Reservation (a GWR) in respect of inheritance tax. Therefore the value of the property at the date of death must be included in the overall value of the estate.

2. Four years ago the legal and beneficial ownership was transferred to the 3 children, each presumably acquiring a 33.33% interest in it.

3. The children do not and have never lived in it as their own main home whilst owners, therefore each is exposed to CGT.

4. The CGT gain is indeed the difference between its market value at the date of gift/transfer and what is actually sells for. As the value 4 years ago was not established at the time, to do that now will be a choice between:
a) getting a professional valuer to do it in writing: or
b) try to DIY the value based on researching what identical/very similar houses in a close proximity to the house actually sold for 4 years ago. Note that is selling price, not the estate agent's marketing price.

When the CGT calculation is submitted to HMRC they have their own in house dept who have access to house value data and they will check their idea against your figure, so you need to be realistically accurate

5. in terms of tax mitigation each person is liable for their 33.33% share. Each person can deduct their CGT personal allowance of £11,300 from their share. Each person will then pay CGT at 18% and/or 28% if their respective residual amount is >£0.

silvercar

Is the starting point for the CGT calculation the market value at the time the property ownership was transferred or the market value of the property at that time allowing for the fact that someone had the lifetime right to occupy paying no rent?

G_M

silvercar wrote: »

Is the starting point for the CGT calculation the market value at the time the property ownership was transferred or the market value of the property at that time allowing for the fact that someone had the lifetime right to occupy paying no rent?

The lifetime right to occupy is irrelevant so far as the children's CGT liability is concerned. 4 years ago they took ownership. They never made it their home(s). They are now selling. Use the calculator.

ooec25 - I was not confused, I was working through the post and responding as I went. You, more sensibly, read the whole post and then responded!

Some of my early responses were therefore 'If x then y', though later on it became clear 'Not x (therefore not y)'.

I agree the key points are the gift with reservation for IHT (though this appears irrelevant given the total estate value), and the children's CGT on sale.

KevinM

Thanks for the advice everyone...It all seems to make sense, and looking at it, IHT really isn't an issue, because of the total value of the estate, but the CGT was what was concerning me...

Not because I wasn't sure about that side of it, but because we didn't have a valuation done at the time of the transfer...I wasn't aware that it was possible for a valuer to give a value from the past, but I suppose a professional valuer would have no difficulty in doing this...

That is probably our first port of call.

Would HMRC take a professional valuation from 4 years ago, or could/would they contest it? We have no interest/intention of trying to dupe any tax liability, and try and get an unrealistic figure, so I suppose whatever the house was valued at 4 years ago would hopefully be sufficient...

I suppose in order to negate any CGT liability, we could possibly see what the valuation was from 4 years ago, and simply sell the house (as a fixed price) for that same figure, hence the Capital Gains would be zero, and therefore the CGT liability would be 33.33% of zero for each child too...

Assuming HMRC accept the valuation figure from 4 years ago from the valuer...

One thing that might be useful to know is, do we submit the past valuation to HMRC, for their approval/agreement on its value 4 years ago, before we sell the property? I ask, as whatever figure HMRC agree on as a value from 4 years ago will probably (give or take, for CGT allowances) be the figure we sell it at...

Also, one thing 00ec25 mentions, is the £11,300 CGT allowance different from the Income Tax Personal Allowance?

Would each child get their £11,500 Income Tax Personal Allowance AND and £11,300 GCT Allowance?

All 3 children currently use their full £11,500 Income Tax Personal Allowance (as they are still working), but would they get £11,300 of CGT allowance aswell, where no CGT would be payable until the Capital Gains exceeds £11,300 x 3, or £33,900?

If that's the case, then could (in theory) the house be valued at (say) £170,000 4 years ago, and be sold for £203,900 now, and there be zero CGT to pay by either child? Am I understanding this correctly?

Again, thanks so much for all of your assistance...It's helping a lot!

G_M

KevinM wrote: »

Would HMRC take a professional valuation from 4 years ago, or could/would they contest it?
If it's a reasonable figure they are likely to accept it.
However they might refer it to the District Valuer to confirm

I suppose in order to negate any CGT liability, we could possibly see what the valuation was from 4 years ago, and simply sell the house (as a fixed price) for that same figure, hence the Capital Gains would be zero, and therefore the CGT liability would be 33.33% of zero for each child too.
Given that between you you probably have £33+K CGT allowance you could sell for that much more without a liablility..

One thing that might be useful to know is, do we submit the past valuation to HMRC, for their approval/agreement on its value 4 years ago, before we sell the property?
No. HMRC are not in the business of valuing properties for the sake of it. You make a CGT declaration, including the relevant values, and HMRC either accept it or refer it.

I ask, as whatever figure HMRC agree on as a value from 4 years ago will probably (give or take, for CGT allowances) be the figure we sell it at...
See above. Plus you can offset selling costs (legal, estate agents etc)

Also, one thing 00ec25 mentions, is the £11,300 CGT allowance different from the Income Tax Personal Allowance?
Yes, different. It's a CGT allowance which most people have.

Would each child get their £11,500 Income Tax Personal Allowance AND and £11,300 GCT Allowance?
The allowances are separate. Not everyone gets exactly the same allowance, but as a generality, you are correct.

All 3 children currently use their full £11,500 Income Tax Personal Allowance (as they are still working), but would they get £11,300 of CGT allowance aswell, where no CGT would be payable until the Capital Gains exceeds £11,300 x 3, or £33,900?
Correct (subject to your individual precise circumstances)

If that's the case, then could (in theory) the house be valued at (say) £170,000 4 years ago, and be sold for £203,900 now, and there be zero CGT to pay by either child? Am I understanding this correctly?
Whiew! we got there!

Note: you do not 'submit the valuation' to HMRC - you simply declare what the value of your property (the bit you individually own ie 1/3rd) was when you aquired it, and the value when you sold it. If HMRC want more info, they'll ask.

Read

https://www.gov.uk/capital-gains-tax/overview

Punch in some numbers to the calculator to see what happens:
Go to HMRC calculator here

You can declare your CGT at any time on a one-off basis here after using the calculator):

• Create an HMRC Gateway Account here
• Log in to 'Report Capital Gains Service' here (register if required)

00ec25

KevinM wrote: »

I wasn't aware that it was possible for a valuer to give a value from the past, but I suppose a professional valuer would have no difficulty in doing this...

That is probably our first port of call.

Would HMRC take a professional valuation from 4 years ago, or could/would they contest it? We have no interest/intention of trying to dupe any tax liability, and try and get an unrealistic figure, so I suppose whatever the house was valued at 4 years ago would hopefully be sufficient...

I suppose in order to negate any CGT liability, we could possibly see what the valuation was from 4 years ago, and simply sell the house (as a fixed price) for that same figure, hence the Capital Gains would be zero, and therefore the CGT liability would be 33.33% of zero for each child too...

Assuming HMRC accept the valuation figure from 4 years ago from the valuer...

One thing that might be useful to know is, do we submit the past valuation to HMRC, for their approval/agreement on its value 4 years ago, before we sell the property?

HMRC will check it against what they think it should be. If theirs and yours are close they will accept yours

you can indeed ask HMRC to confirm what they think of your valuation, but you can only do so after the property has been sold and leave at least 3 months before the final deadline by which you must submit your tax return on which you will pay the bill so HMRC can check and get back to you - details explained on the link., please read...

you do so using a Form CG34
https://www.gov.uk/government/publications/sav-post-transaction-valuation-checks-for-capital-gains-cg34

KevinM wrote: »

I ask, as whatever figure HMRC agree on as a value from 4 years ago will probably (give or take, for CGT allowances) be the figure we sell it at...

either you are mad or you have totally misunderstood what you have read

why sell something "cheap" when you can sell it for more and only pay a bit of tax
CGT rate is not 100%, eg. for a gain of £10, it will cost you at the very worst £2.80 in tax, leaving you to keep the other £7.20

with your approach you won't get the £7,20 because you won't have any gain at all

KevinM wrote: »

Also, one thing 00ec25 mentions, is the £11,300 CGT allowance different from the Income Tax Personal Allowance?

Would each child get their £11,500 Income Tax Personal Allowance AND and £11,300 GCT Allowance?

have you even read the basics of how CGT works?
https://www.gov.uk/capital-gains-tax/overview

please do so rather than us have to write out such basics

KevinM wrote: »

If that's the case, then could (in theory) the house be valued at (say) £170,000 4 years ago, and be sold for £203,900 now, and there be zero CGT to pay by either child? Am I understanding this correctly?

yes, but you will get muddled if you try to calculate as a total

tax is applied to each person individually, so if their share of the gain is £11,300 or less than their allowance covers the gain in full and they will have no CGT to pay

please appreciate that whilst each person gets £11,300 for the tax year of the sale that covers any and all capital transactions each person makes that year so, for example, one of the 3 children may have other gains that year which use up part of their allowance, so that person's tax outcome will be different to the other 2 children's outcome if the latter 2 only have the house sale as their capital transaction that year. Hence do not work in totals, work in individual shares.

KevinM

Thanks so much for all of the help and advice

I apologise for coming across as sounding a bit stupid, but I have never sold a property before, so I wasn't sure of the tax implications...

I am now a lot wiser after all of your replies, and am happy to proceed with taking the next step...The only reason I talked about selling at the 2013 value is purely to keep things as absolutely simple as possible, and to get a quick, hassle free sale...However, I see now that there is scope for a smallish profit to be had, and that seems the most obvious route to go down...

Thanks again for the advice

getmore4less

IF there was a lifetime right to live in the place that makes he transfer an "interest in possession trust"

The rules for that are different.