Capital Gains or Inheritance??

FriendlyJ

Good afternoon all I have a question for all you clever tax people:D
My oh inherited a house early sept (just before new tax laws came into force:mad: )
If the property is valued by (3) estate agents @ 285k for probate & it then sells at a higher value at a later date do we have to pay tax inheritance tax on the difference?
Solicitor has advised for probate to say that we are keeping the property & to get the district valuer in so that the difference between valuation & sale isn't so high (if it sells at a higher price) therefore we will only pay CGT on the difference.
How does the taxman know if it sells for a higher value? If they do, do we have to pay the difference at 40%?
Also (sorry nearly there) if we keep the house for a year or so the property is bound to go up in value so will we have to pay the difference in a few years time?
T in A
J

EdInvestor

FriendlyJ wrote: »

My oh inherited a house early sept (just before new tax laws came into force:mad: ).If the property is valued by (3) estate agents @ 285k for probate & it then sells at a higher value at a later date do we have to pay tax inheritance tax on the difference?

You don't pay anything - it's the estate that pays the inheritance tax.Is there anything else in the estate? If the total value of the estate is 300k or less there is no IHT to pay. The estate will pay IHT @ 40% on anything over 300k ( ie, estate worth 350k tax is 40% of 50k = 20k).

Solicitor has advised for probate to say that we are keeping the property & to get the district valuer in so that the difference between valuation & sale isn't so high (if it sells at a higher price) therefore we will only pay CGT on the difference.

There is no CGT involved here at all.

How does the taxman know if it sells for a higher value? If they do, do we have to pay the difference at 40%?

See above. The executor of the estate is required to tell the taxman if tax is due.

if we keep the house for a year or so the property is bound to go up in value so will we have to pay the difference in a few years time?

This is where CGT comes in. It would be payable on any gain in value over the value at the time you inherited the property in future, if it is not your main residence. As of next year this CGT will be charged at 18%.There are other reliefs if you live in the property for a while and then let it out.

FriendlyJ

Hiya EdInvestor - yes there is a bit of money involved & this is all going to pay the inheritance tax - the only thing left after IT will be the house & some land too.
The thing that is confusing me is that I thought that IT is paid on the value of the estate at the time of death not when we eventually sell the house.
Will the tax man come back for more tax @ 40% if we sell the property at a higher value than when it went through probate?
J

silvercar

IT will be assessed on the agreed probate value. CGT on the difference between probate value and sale price.

FriendlyJ

Thanks for the info:T
The solicitor is saying that the taxman can disagree with the probate valuation figure after if it has been sold for more money at a later date - I can't understand this the valuation has been done by 3 estate agents if they don't know the true value then I'm stumped!
Can the taxman disagree the probate valuation if the house is eventually sold for more money & then claim 40% back not 18%
Is probate a way of making sure that the correct amount of tax is paid in IT?
tia
J

CLAPTON

In the current climate its more likely that the house will fall in value over the next couple of years.

In principle the HMRC can challenge the valuation of probate if the house sells for significantly more especially if sold a very short time after probate.

However if you have several valuations you should be OK.

FriendlyJ

Thanks CLAPTON can't see it going for much more anyway with the current market being as it is! The solicitor has just worried us a bit about the tax thing. We wouldn't be selling til next June/July anyway. But do you think that I am safe in assuming that we pay your IHT at 40% once probate has gone through & then when we sell CGT at 18%.
J

CLAPTON

the rule after april is

your OH has a personal CGT allowance of 9,200 and then they pay 18% on any gain over that.
however if you're are married then it will be beneficial to transfer half the house to you so you can use your 9,200 allowance too (one of the few benefits of being married).

FriendlyJ

(one of the few benefits of being married).
LOL can think of a few more but they are quite small!!:rotfl:

Cook_County

FriendlyJ wrote: »

Also (sorry nearly there) if we keep the house for a year or so the property is bound to go up in value ...
J

I'm now confused.

This property is bound to go up in value according to the question, but later in the same day it is staying the same.

Which of these contradictory statements is true? This affects both IHT and CGT.

FriendlyJ

Hiya Cook_County - For a variety of reasons we can't sell the property til next year- were thinking of living it for a while (don't know yet), but the way the market is going it might not go up in value anyway - the market seems to be going through a little slump in this area!
J