Capital gains tax confusion

naedanger

jsatellite said:

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?

Not legally as far as I am aware, at least if the 5% increase is due to gains made since your late mother's date of death as opposed to an erroneous initial valuation.

Whether the tax man would find out is another matter. It seems an obvious area for the taxman to be on the look out for currently, because property markets have generally seen large gains recently. However I have no idea how HMRC actually operate.

If the estate was to receive a tax penalty (as opposed to just the bill for unpaid tax) I expect (but haven't checked) that the executor would be liable for the full penalty.

Jeremy535897

I assume that the estate is within the nil rate band, otherwise you would be paying 40% inheritance tax on the increase?

A property value submitted for probate purposes on estates where no inheritance tax is payable does not bind HMRC to accept that value at the date of death for capital gains tax purposes. HMRC can always dispute it. It is for you to decide what value to submit on the forms.

jsatellite

Yes, the estate's well below the nil rate band even with the increase (when the RNRB is applied). It's been 5 1/2 months since my mother's death, property prices in the area have risen in the meantime, so I don't think the initial valuation was artificially low or wrong. Fair enough if CGT would be due on that 5% should it achieve the asking price. I could understand if a beneficiary inherited a property worth a certain value and then sold it making a gain, but when an administrator sells without ownership changing it seems wrong. But of course I'll do what's legal.

naedanger

jsatellite said:

Yes, the estate's well below the nil rate band even with the increase (when the RNRB is applied). It's been 5 1/2 months since my mother's death, property prices in the area have risen in the meantime, so I don't think the initial valuation was artificially low or wrong. Fair enough if CGT would be due on that 5% should it achieve the asking price. I could understand if a beneficiary inherited a property worth a certain value and then sold it making a gain, but when an administrator sells without ownership changing it seems wrong. But of course I'll do what's legal.

The ownership is changing when the administrator sells. 

jsatellite

Right, but what I meant was the ownership hasn't transferred to the administrator, so no one has gained.

naedanger

jsatellite said:

Right, but what I meant was the ownership hasn't transferred to the administrator, so no one has gained.

The estate has gained that amount (i.e. value at date of sale less value at date of death) during its period of ownership.

(It the beneficiaries inherited the property, when they ultimately sold it, assuming it wasn't their residence, then they would be liable on that gain too - plus any subsequent gain for the period after the property came into their possession.)

naedanger

naedanger said:

jsatellite said:

Right, but what I meant was the ownership hasn't transferred to the administrator, so no one has gained.

The estate has gained that amount (i.e. value at date of sale less value at date of death) during its period of ownership.

(It the beneficiaries inherited the property, when they ultimately sold it, assuming it wasn't their residence, then they would be liable on that gain too - plus any subsequent gain for the period after the property came into their possession.)

It the tax due is large, one possibility might be to seek legal advice on whether, provided all the beneficiaries agree, and despite the Will's stipulation, the property could be transferred to them prior to the sale (e.g. via a deed of variation or some other legal arrangement) so that they can each utilise their cgt allowance.

jsatellite

Apologies if I sounded argumentative or defensive on this thread, this was a somewhat bewildering topic for me, and there was conflicting information on the web about it (even on solicitors' and money advice sites). I do appreciate the guidance.

jsatellite

As the house is also my only residence, shouldn't I qualify for private residence relief and therefore be exempt from CGT?

Jeremy535897

If you meet the conditions in section 225A TCGA 1992, yes:
https://www.legislation.gov.uk/ukpga/1992/12/section/225A