Capital gains tax confusion

jsatellite

I'm administering my late mother's estate, which includes a house that her will stipulates has to be sold. Normally if there's a sizable gain after selling a property you inherit, you need to pay capital gains tax. But as the beneficiaries in this case (myself and my sister) aren't actually inheriting the property physically, just the proceeds, do those rules apply?

Jeremy535897

Whatever the will says, any property your mother owned personally at the date of her death is rebased for capital gains tax to its market value at the date of her death, but no capital gains tax is due by the estate.

jsatellite

OK, but what does that mean for the beneficiaries? Would they still have to declare any profit and potentially pay the tax on it?

JGB1955

The beneficiaries will never have owned the property, never have made any profit or gain from it and will owe no tax on it.  IHT may well be payable - but by the estate, not the beneficiaries.

Jeremy535897

If the estate sells the property at a profit compared with market value at the date of death, they may have a tax liability.

jsatellite

I wonder if anyone else has any thoughts about this? Thanks.

kuratowski

I think you've already had advice from the experts!

If preferred, you can read about it for yourself here

https://www.gov.uk/government/publications/death-personal-representatives-and-legatees-hs282-self-assessment-helpsheet/hs282-death-personal-representatives-and-legatees-2021

Keep_pedalling

jsatellite said:

I wonder if anyone else has any thoughts about this? Thanks.

Well if it sells quickly after probate at a price well over what was declared on the IHT forms then HMRC maybe chasing the executor for inheritance tax rather than CGT. How have you valued it currently?

jsatellite

The trouble with the advice is that they don't agree. I don't anticipate any gain being over my personal allowance but value of the house has increased since Mum died.

I've got a couple of estate agent valuations and search results from real estate websites - the person I spoke to at HMRC said those would be fine. There'll be no inheritance tax with the RNRB.

Jeremy535897

If you read HS282 (link in an earlier post), you would see:

"CGT liability for the period of administration

During the period of administration, the personal representatives may be liable to CGT if they sell or otherwise dispose of any of the assets in the estate. This does not apply when assets are passed to legatees under the terms of the will, and so on.

During this period the personal representatives have absolute control over the assets, except those that have been passed to the legatees. They’re not bare trustees or nominees for the legatees.

Where:

• an asset has not been formally transferred to a legatee
• the residue of the estate has not been ascertained
• the asset is disposed of by the personal representatives
• a gain arises

The gain is chargeable on the personal representatives and not the legatee."

The personal representatives have no personal allowance (which is an income tax matter anyway), but do have an annual capital gains tax exemption of £12,300, like individuals. Your personal capital gains tax exemption is for your gains, not estate gains.

jsatellite

I've now got the house on the market and there is a 5% increase over the initial valuations. I'm selling as administrator not beneficiary. As I haven't yet sent the inheritance tax forms I wondered if I should just use the current marketing price for the valuation instead?