CGT

Napista

I inherited a property late last year and was granted probate earlier this year, and an offer has now been accepted on the house. We used our best guess estimate of the value of the estate for probate but less than 12 months later, we're looking to be that we underestimated by about £40-50k. This could be in part house prices having gone up but I think we also didn't estimate well or really understand what we were supposed to do. 

My question is, will we need to pay Capital Gains Tax on everything between our estimate and the final total (minus allowance), or is there another option open to us? 

Thank you. 

Keep_pedalling

Was the estate in or near inheritance tax territory? 

bobster2

Napista said:

I inherited a property late last year and was granted probate earlier this year, and an offer has now been accepted on the house. We used our best guess estimate of the value of the estate for probate but less than 12 months later, we're looking to be that we underestimated by about £40-50k. This could be in part house prices having gone up but I think we also didn't estimate well or really understand what we were supposed to do. 

My question is, will we need to pay Capital Gains Tax on everything between our estimate and the final total (minus allowance), or is there another option open to us? 

Thank you. 

For IHT purposes what is relevant is the value of the estate on the date of death - not the value now.

If HMRC have accepted the valuation of the house when you obtained probate - and it has since gained in value then the estate (or the beneficiaries) could be liable of capital gains tax on that increase.

Whether it's the estate or the beneficiaries liable for CGT depends on how things were handled. E.g. if the house stayed part of the estate up until sale with the plan being to distribute the proceeds to beneficiaries it'll be the estate liable for CGT. If ownership of the house was transferred to beneficiaries who then sold it - the beneficiaries will be liable for CGT.

Keep_pedalling

Taking a best guess was a terrible mistake. If the estate was well below IHT level then get 3 EA valuations and go with the highest to avoid this very situation. For an estate in or near to IHT then a proper paid for RICS valuation should be used.

msb1234

In reality, if you declared the house to be valued at £200K as an example, and it’s sold for £250k then there’d be a CGT liability on the increase - £50k. However, when you completed probate, you thought you’d get £200k when you sold the house. Now you’ll get £250K less CGT. Which is still more than you initially thought. 

Linton

IHT405 gives you the option to use the house sale price as the value at death if sold within 12 months.

Presumably not useful for the OP but could be for other readers.

Napista

Thank you for the responses, we realise it was a mistake now but at the time we were in shock, we didn't realise there were repercussions either way. We didn't think we would hit IHT threshold but now will due to increase in house prices in that time (by about 10k). But maybe not as that's not value at death? Nobody has moved into the property. 

Not looking to avoid paying anything we need to pay, but equally wanting to make sure we're not making further mistakes by not being informed. The house probably will sell within 12 months of death (unless there are long delays). Is IHT405 for inheritance tax rather than capital gains or both? (I couldn't see anything regarding CGT when I've looked).

Thanks everyone, it's so hard working through all this after a loss, I wish I'd thought to write on boards at the time.

poppystar

Napista said:

Thank you for the responses, we realise it was a mistake now but at the time we were in shock, we didn't realise there were repercussions either way. We didn't think we would hit IHT threshold but now will due to increase in house prices in that time (by about 10k). But maybe not as that's not value at death? Nobody has moved into the property. 

Not looking to avoid paying anything we need to pay, but equally wanting to make sure we're not making further mistakes by not being informed. The house probably will sell within 12 months of death (unless there are long delays). Is IHT405 for inheritance tax rather than capital gains or both? (I couldn't see anything regarding CGT when I've looked).

Thanks everyone, it's so hard working through all this after a loss, I wish I'd thought to write on boards at the time.

I was in much the same situation and ended up paying CGT. At the end of the day it was all so stressful when not at your best that I just felt I couldn’t deal with any more so paid up the CGT based on the increase over the original valuation used. 

If the higher price for you would lead to IHT then keeping the original valuation and paying the requisite CGT would seem better as CGT is less than IHT.