Capital Gains Tax on Inherited Property

hamble102

Sadly our father passed away last year.  Myself and my two siblings have inherited his property and we have just had an offer (lower than we wanted) and I wondered if we have to pay capital gains tax when the sale completes?

Any advice would be most welcome.

Thank you in advance 

AdrianC

Did the executor(s) actually transfer the property into your names, or is it still owned by the estate and being sold by the executor(s)?

If it's being sold by the estate, then you never owned it, so you can't be taxed on it. You're inheriting money.

If you transferred it into your names, then there's a big clue in the name. Capital Gains Tax. You pay tax on the capital gain in your ownership.
For an inherited property, the starting point is the value at inheritance - which can safely be assumed to be the probate value.

How much gain has the property made over that value?
Remember you can each make a £12,300 gain in a tax year without being taxed, then you pay 18% (assuming you aren't higher rate taxpayers) on the gain above that value.

hamble102

Thank you so much for your reply.

feeling a little overwhelmed to be honest as struggling with anxiety and grief and the pandemic has made it all harder to digest, so I’m sorry if I come across a little niaive.

Dad passed without leaving a will so his estate passed to his three adult children under the intestacy rules.  Probable is now complete and we have letters of administration.  The property is still registered in Dad’s name at the Land Registry and we didn’t transfer it into our names.  The property has been empty and has never been rented out as it was Dad’s home before he died.  So I’m thinking we would not be liable for inheritance tax then.  Is that correct?

AdrianC

IHT depends on the total value of his estate. If he was worth more than £325k - including the value of the house - then his estate pays 40% tax on everything above that value. The beneficiaries of the estate don't pay IHT, the estate does. The estate then distributes the remainder of his assets between the beneficiaries.

hamble102

Hi Adrian

There was no inheritance tax to pay and probate is now complete.  It was the capital gains tax I was worried about when the sale of his property completes as myself and my two siblings all own our own family properties that we love in but have inherited Dad’s property between us and that was what I was concerned about.  But by the looks of your advice on your first reply, I’m hoping that we shouldn’t have to pay capital gain.

thank you again

hamble102

*live in (autocorrect 🙈)

AdrianC

hamble102 said:
...but have inherited Dad’s property between us...

No, you haven't.

His property is still owned by him - or, rather, his estate, and the administrators of his estate are selling it.

The individual beneficiaries of his estate will then inherit the money from that sale.

It just so happens that the individuals acting as administrators are the same individuals who will be the beneficiaries when the administration of the estate is complete, but that doesn't affect the separation of the roles.

hamble102

Ah I see.  So his property is part of the estate, it’s still in his name but we inherit the money from the sale as part of the estate and not the house.  I see what you’re saying and sorry if I sound clueless, just never been in this position or had experience of it before.

So just to confirm, there should be no capital gains tax to pay from the sale of the house?

thanks again

davidmcn

The tax to pay (if any) would be Inheritance Tax. You say there's nothing due, but is the sale price the same as what you valued it at for probate purposes? The actual sale price will (as you might expect) be treated as more accurate than the original estimate of the value.

AdrianC

hamble102 said:

So just to confirm, there should be no capital gains tax to pay from the sale of the house?

Correct.

There's been no gain in value between it coming into your ownership and being disposed of.
Even if it had gained in value since his death, it hasn't come into your ownership...

hamble102

davidmcn said:

The tax to pay (if any) would be Inheritance Tax. You say there's nothing due, but is the sale price the same as what you valued it at for probate purposes? The actual sale price will (as you might expect) be treated as more accurate than the original estimate of the value.

Thank you David.  Due to the pandemic, the sale price is considerably lower than it was valued at for inheritance tax purposes and well below the threshold of inheritance tax for my dad’s estate as the house passed to Dad when Mum passed away and we used her nil rate band as well.