CGT or IHT or both?

confusedbunny368

Hi please can you clarify something.

My Dad has his home and a buy to let. The Buy to Let is on the market but no offers. From what we understand if he were to sell it he must pay CGT at 28%. Once that is paid does the remainder (whatever he doesn’t choose to spend) become part of his estate, in which case as children we would then have to pay 40% IHT for anything over £1million?

If in worst case scenario he passed before the property is sold is it just IHT that has to be paid as the value of both homes will form part of his estate or would CGT have to be paid as well if his children sold the Buy to Let on his passing?

Thanks

Keep_pedalling

CGT would only be paid on on the gain not on the whole sale price, and yes the remainder forms part of his estate, although whether any IHT would be due on his estate would depend if it exceeded his available nil rate bands which could be up to £1M if he is a widower.

If the rental property is suitable he could sell he current home and move into the rental property and avoid CGT altogether. .

00ec25

Keep_pedalling wrote: »

If the rental property is suitable he could sell he current home and move into the rental property and avoid CGT altogether. .

that comment is so full of holes it must be a bit of Swiss cheese

you cannot say that on the info provided

confusedbunny368

Keep_pedalling wrote: »

CGT would only be paid on on the gain not on the whole sale price, and yes the remainder forms part of his estate, although whether any IHT would be due on his estate would depend if it exceeded his available nil rate bands which could be up to £1M if he is a widower.

If the rental property is suitable he could sell he current home and move into the rental property and avoid CGT altogether. .

Thank you for your reply. Yes I understand CGT will only be paid on the gain. Yes it will also exceed his nil rate bands as he is a widower. What I would like to know please is that if CGT is paid (say 28% for arguments sake if the buy to let ever gets sold) would IHT also have to paid on that amount after his passing?

In which case roughly speaking 68% of the current value of the gain on the buy to let will disappear in tax?

Unfortunately there is no option to sell main house and move into the buy to let.

Thank you

Keep_pedalling

confusedbunny368 wrote: »

Thank you for your reply. Yes I understand CGT will only be paid on the gain. Yes it will also exceed his nil rate bands as he is a widower. What I would like to know please is that if CGT is paid (say 28% for arguments sake if the buy to let ever gets sold) would IHT also have to paid on that amount after his passing?

In which case roughly speaking 68% of the current value of the gain on the buy to let will disappear in tax?

Unfortunately there is no option to sell main house and move into the buy to let.

Thank you

No, CGT paid prior to death is not part of the estate, and any CGT due but not paid before death would be classed as a debt owed by the estate so IHT would not be owed on that debt.

getmore4less

if CGT is paid (say 28% for arguments sake if the buy to let ever gets sold) would IHT also have to paid on that amount after his passing?

In which case roughly speaking 68% of the current value of the gain on the buy to let will disappear in tax?

You lose from the total 28%
Then from what's left(if all over the NRBs) there will be 40%

0.40*0.72+0.28 = 0.568

Death resets the values for CGT to value at DOD.

As a widow are you sure there will be 100% of both NRB available?

Tom99

Say, just for example, the CGT due if he sells now is £50,000.
If he does not sell there would be no CGT but the estate would be £50,000 more valuable so would pay £20,000 extra IHT.
The net effect is that the beneficiaries will be better off if he does not sell by 60% of the current potential CGT bill.