Help with CGT and making a will please.

Oddjob

I have booked an appointment with a solicitor to make my will.  I own a house but it will not be worth much as it needs a lot of work doing to it.  It is nowhere near being liable for inheritance tax.

As I understand it, if whoever inherits it - my best friend - sells it, CGT will have to be paid.  If they decide to do a lot of repairs on it to get a better price, will the cost of the repairs be taken into account when working out the CGT?

They will have to sell the house at some point in order to pay out the bequests I want to make and probably for the funeral,  Does the value of the bequests get taken off the amount raised by the sale before CGT is worked out?  Ten thousand pounds is being left to a charity.

I obviously need to know as I don't want to make bequests to other people and leave them with less money than other beneficiaries as they are going to be my executor.

Hope someone can help.

SiliconChip

This is best discussed with your solicitor when drafting the Will, but if you intend to make bequests that are of greater value than your liquid assets you can't do that and leave the house to one beneficiary, the house will form one part of your total estate. Your executor is the one who would have to take responsibility for selling the house, and if they decide to do repairs before selling then any CGT liability will fall on the estate so that will be paid before distribution of the residue. My suggestion would be to leave percentages of your residual estate to the main beneficiaries after payment of any small distributions - although if you intend to leave money to a charity then a percentage to them could cause your executor a lot of grief so you might be best to leave a fixed sum to them.

Keep_pedalling

If you leave your house to a friend other bequests that can’t be met from the rest of your estate will fail. You should also consider that the bequest to your friend will also fail if for some reason you no longer own the house at the time you die, sold to pay for residential care for instance. 

I can’t think why you are concerned about CGT though, few people would even think about trying to increase the value by spending money to renovate an inherited house.

Marcon

Keep_pedalling said:

If you leave your house to a friend other bequests that can’t be met from the rest of your estate will fail. You should also consider that the bequest to your friend will also fail if for some reason you no longer own the house at the time you die, sold to pay for residential care for instance. 

I can’t think why you are concerned about CGT though, few people would even think about trying to increase the value by spending money to renovate an inherited house.

Plenty of people do precisely that, especially if the house belonged to an elderly relative who hasn't done any sort of decorating or renovating since the year dot! 

msb1234

If you know the current market value of your house as it stands, you can get a good idea of what your estate would be worth should you die now. Then you can decide how to split your estate. For example, if your house is worth £100k and you have £10k in the bank, you might choose to leave £10k to one person, £10K to another and the residual estate to a third person. The house would need to be sold in order to facilitate this - not forgetting that you’d also need to account for funeral expenses! 

Unless your friend whom you’re planning on leaving your house to is very good at DIY / a builder, they’d most likely end up with as much money from selling your house as it stands compared with having it renovated then selling it. 

Oddjob

Oddjob said:

SiliconChip said:

This is best discussed with your solicitor when drafting the Will, but if you intend to make bequests that are of greater value than your liquid assets you can't do that and leave the house to one beneficiary, the house will form one part of your total estate. Your executor is the one who would have to take responsibility for selling the house, and if they decide to do repairs before selling then any CGT liability will fall on the estate so that will be paid before distribution of the residue. My suggestion would be to leave percentages of your residual estate to the main beneficiaries after payment of any small distributions - although if you intend to leave money to a charity then a percentage to them could cause your executor a lot of grief so you might be best to leave a fixed sum to them.

Keep_pedalling said:

If you leave your house to a friend other bequests that can’t be met from the rest of your estate will fail. You should also consider that the bequest to your friend will also fail if for some reason you no longer own the house at the time you die, sold to pay for residential care for instance. 

I can’t think why you are concerned about CGT though, few people would even think about trying to increase the value by spending money to renovate an inherited house.

That will not be what I want then as there will not be enough in the residual estate to pay the bequests I want to make without them coming out of the house money when it is sold. 

Isn't there any way around that?

Could I not make the bequests and put that whatever is left goes to my friend ?

Keep_pedalling

Oddjob said:

SiliconChip said:

This is best discussed with your solicitor when drafting the Will, but if you intend to make bequests that are of greater value than your liquid assets you can't do that and leave the house to one beneficiary, the house will form one part of your total estate. Your executor is the one who would have to take responsibility for selling the house, and if they decide to do repairs before selling then any CGT liability will fall on the estate so that will be paid before distribution of the residue. My suggestion would be to leave percentages of your residual estate to the main beneficiaries after payment of any small distributions - although if you intend to leave money to a charity then a percentage to them could cause your executor a lot of grief so you might be best to leave a fixed sum to them.

Keep_pedalling said:

If you leave your house to a friend other bequests that can’t be met from the rest of your estate will fail. You should also consider that the bequest to your friend will also fail if for some reason you no longer own the house at the time you die, sold to pay for residential care for instance. 

I can’t think why you are concerned about CGT though, few people would even think about trying to increase the value by spending money to renovate an inherited house.

That will not be what I want then as there will not be enough in the residual estate to pay the bequests I want to make without them coming out of the house money when it is sold. 

Isn't there any way around that?

No, what you would normally do is make minor bequests with your residual estate going to the main beneficiary. 

RAS

You certainly can, but there is a chance that if a lot of your capital has been eaten up by care fees, your friend gets nothing.

May be best to leave A, B and C plus your friend specific bequests and the residuary to your friend. That way if your bequests total £50k and you end up leaving £40k, at least your friend gets (something 80% of the specified bequest).

p00hsticks

Marcon said:

Keep_pedalling said:

If you leave your house to a friend other bequests that can’t be met from the rest of your estate will fail. You should also consider that the bequest to your friend will also fail if for some reason you no longer own the house at the time you die, sold to pay for residential care for instance. 

I can’t think why you are concerned about CGT though, few people would even think about trying to increase the value by spending money to renovate an inherited house.

Plenty of people do precisely that, especially if the house belonged to an elderly relative who hasn't done any sort of decorating or renovating since the year dot! 

But when the subject comes up on either this or the Housing board, the advice is nearly always not to bother providing the house is mortgageable (i.e. has a basic functional kitchen and bathroom).

A house that hasn't had 'any sort of decorating or renovating since the year dot' will usually require significant amounts of both time and money spent on it to make a noticeable difference - it;s not simply a case of slapping a few coats of magnolia paint on the walls. If the objective is simply to increase the value of the property to sell then, as pointed out, any rise in value since the death leaves the estate / beneficiary open to a CGT bill. It can also be problematical if there are multiple beneficaries and they cannot agree on what work shoud be done and how it should be funded. Unless you are in the trade and/or experienced and prepared to disregard the time you spend actually doing the work, values rarely increase by more than the renovations cost.

Previous posters asking the same question on this board have often come back to say that after consulting estate agents for advice on what would improve the value / marketability of a 'doer-upper' as people have suggested, they have been generally told to simply market it as is, and in the past have been surprised at how quickly it has sold and at the price acheived.

Oddjob

p00hsticks said:

Marcon said:

Keep_pedalling said:

If you leave your house to a friend other bequests that can’t be met from the rest of your estate will fail. You should also consider that the bequest to your friend will also fail if for some reason you no longer own the house at the time you die, sold to pay for residential care for instance. 

I can’t think why you are concerned about CGT though, few people would even think about trying to increase the value by spending money to renovate an inherited house.

Plenty of people do precisely that, especially if the house belonged to an elderly relative who hasn't done any sort of decorating or renovating since the year dot! 

But when the subject comes up on either this or the Housing board, the advice is nearly always not to bother providing the house is mortgageable (i.e. has a basic functional kitchen and bathroom).

A house that hasn't had 'any sort of decorating or renovating since the year dot' will usually require significant amounts of both time and money spent on it to make a noticeable difference - it;s not simply a case of slapping a few coats of magnolia paint on the walls. If the objective is simply to increase the value of the property to sell then, as pointed out, any rise in value since the death leaves the estate / beneficiary open to a CGT bill. It can also be problematical if there are multiple beneficaries and they cannot agree on what work shoud be done and how it should be funded. Unless you are in the trade and/or experienced and prepared to disregard the time you spend actually doing the work, values rarely increase by more than the renovations cost.

Previous posters asking the same question on this board have often come back to say that after consulting estate agents for advice on what would improve the value / marketability of a 'doer-upper' as people have suggested, they have been generally told to simply market it as is, and in the past have been surprised at how quickly it has sold and at the price acheived.

They would probably be better off selling as it is as it needs a lot of work.  As it is a three storey house, most houses coming up in the area get turned into HMO's/student accomodation

macman

Why don't you simply leave your friend the value of the property once it has been disposed of by the estate, rather than burden them with an apparently run-down property? They will then inherit the same amount they would have got, and no tax will be due.
The cost of improvements can be set against CGT, but not maintenance/repairs.
Does your friend actually expect to or want to inherit a run-down property, when they already have a house?