Capital gains tax on inherited house?

Polly05

Hi,

I'm wondering if anyone could help explain capital gains tax to me about my situation.

My mum died and my sister and I inherited her house. There was still a mortgage on it but we used her life insurance/pension (can't remember which) to pay it off.

So now it is 50/50 owned between me and my sister. 

If I was to sell my half to my sister, I think I would need to pay capital gains tax. How do I work out how much that would be?

I think it's something to do with the increase in price of the house but.. I don't understand when to compare to now?

Does that make sense?

Sorry and thanks! 

Slithery

Has the property already been transferred into your names or are you still going through probate?

Polly05

No it's all complete.. Its ours now. 

greatcrested

Assuming Probate has been granted and the property transferred into your joint names:

If the property value at the time your sister buys from you is higher than the Probate value  (at date of death), there are 2 options:

* amend the probate value (and the Estate/Eceuters incur any relevant Inheritance Tax), or

* pay any Capital Gains tax yourself - subject to your annual allowance (unless you've already used that by selling the Renois).

8. What happens if the sale price is lower than the Probate value?

If the property is sold within 4 years of the date of death and the sale price is lower than the figure provided for Probate, a claim can be made to HM Revenue & Customs for a refund of any overpayment in IHT.

9. What happens if the sale price is higher than the Probate value?

If the property is sold soon after Probate is granted and the sale price is more than the figure submitted for probate, HM Revenue & Customs may try to substitute the sale price instead of the previously submitted figure and recalculate the IHT liability. This can however be challenged and negotiated with the District Valuer if required. Alternatively HM Revenue & Customs may view the increase as a gain during the administration period, and therefore CGT may be payable.

https://www.butlersherborn.co.uk/property-blog/probate-valuations-common-queries-explained

Polly05

So I need to work out the value of the house at the time of the probate. Will that be on the paperwork from the lawyer, do you think?
And it would be.. 28%? Of any increase between then and when I sell it? Or.. 28% of 50% of any potential increase? 

greatcrested

Who is/are the Executers(s) of mum's Estate?

If Probate has been granted, he/they will have valued the property (along wth all the other assets: jewelry, car, clothes, TV, helicopter etc).

If Probate has not yet been granted, then the Executer's must still be doing this.

If the Estate, or your sister, sells to you at the Probate value, there's no tax to pay unless HMRC suspect the value has increased since probate. Unlikely if the sale is immediately after Probate. More likely if there's a larger gap in time.

Inheritace Tax is 40% on Estates over £325K. (Though there are allowances, reductions etc - it's complex tax law!)

Capital Gains Tax depends on your tax rate. It's either 18%, or 28% or a combination.

https://www.gov.uk/inheritance-tax

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

davidmcn

I'm guessing (from the fact the OP can't remember how the mortgage was paid off) that the inheritance was some time ago. Anyway, yes, the value used for probate ought to be among the paperwork from the lawyer.

Polly05

Yes it was a couple of years ago. 
My sisters and I were executers, but we didn't value the house. The lawyer must have dealt with it. 
There was no inheritance tax to pay. 

macman

But you must have seen and signed off the estate accounts and probate values?
All this assumes that you already own one other property-do you?
Has the property been vacant for two years then, let to tenants...?

Polly05

Yes I own my own place. My sister moved into my mums and has been living there. 

macman

OK, so you will be liable for CGT on your share then.