Capital Gains Tax on house sale following death of parent

emilylemon

Hi, I’m in Scotland (in case law is different) and my mother died last year. I’m the sole Executor of the Will. 

We’ve had Confirmation from the court and my mother’s house should complete sale next week. 

There will be a small profit (around £50k) which I realise I have to pay Capital Gains Tax on.

However, I have just realised that if I am to split the sale proceeds with my sister, then that implies she will have to declare half of the £50k Gain -or do I take it all on as Executor?

Next, I have read confusing guidance online. I have signed onto the Government portal to declare the Gain and will see how far I get on my own.

However, I have read I also have to complete an additional self assessment tax return. Is that correct? Surely, if I am declaring the Gain and paying the tax, then that’s it declared and dealt with?

[Deleted User]

Who has inherited the house? You with you agreeing to split the proceeds with your sister ? Or both you and your sister?

If just you, you declare the gain. If both, you each declare half of the gain. 

The gain must be reported within 60 days of signing of contract AND be declared on a self-assessment tax return for 2023/24 tax year, the latter to be submitted by 31st January 2025.

https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020

Jeremy535897

The tax situation depends on whether the house is sold by the executor, or whether it is first transferred to the legatees and then sold by those legatees. See:
https://www.gov.uk/government/publications/death-personal-representatives-and-legatees-hs282-self-assessment-helpsheet/hs282-death-personal-representatives-and-legatees-2022

The capital gains tax base cost, whichever scenario applies, is the value of the house at the date of mother's death. If inheritance tax was paid, that value should have been agreed. If not, it can be challenged by HMRC. Is there really a profit of £50,000 since your mother's death last year?

Splitting the gain between the two of you would enable each of you to use the £6,000 annual exemption (unless used on other sales of assets) and the rate of capital gains tax may be lower (executors pay 28%, individuals pay 18% or 28% or a mixture thereof, depending on their taxable income). If the sale has already been agreed, it may be too late to change the situation.

The gain must be reported and the tax paid (either by the executor, or by you and your sister as individuals, depending on which of the scenarios I have referred to applies) within 60 days of completion, rather than 60 days from the date the sale contract is signed, but in modern conveyancing the dates are often the same.

The executors will no doubt need to file a self assessment tax return as well, that shows the gain and the tax already paid. If you and your sister are the vendors, then you would only need to complete self assessment tax returns if you need to complete them for any other reason, or if the capital gains tax paid by reference to the online form was incorrect (as it might be because you have to predict your income levels to work out the applicable rate of capital gains tax, and you may not know this early in the tax year).

emilylemon

Thank you for your responses above. My mother’s Will states the proceeds of the house sale should be shared with my sister. I’m the only Executor. I put the house on the market as soon as the Court Approved the Confirmation. There is no Inheritance tax to pay.

I think I may have been confused by online guidance that said the Capital Gain is the difference between the value the house was purchased for (9 years ago) and the value it has just sold for?  That’s where the £50k came from.
I have also now read it’s the difference between the valuations we had done that went into the Confirmation document and the price the house has just sold for. The house sold for less than it was valued at last year. If that was the case the there would be no Capital Gain?

[Deleted User]

emilylemon said:

Thank you for your responses above. My mother’s Will states the proceeds of the house sale should be shared with my sister. I’m the only Executor. I put the house on the market as soon as the Court Approved the Confirmation. There is no Inheritance tax to pay.

I think I may have been confused by online guidance that said the Capital Gain is the difference between the value the house was purchased for (9 years ago) and the value it has just sold for?  That’s where the £50k came from.
I have also now read it’s the difference between the valuations we had done that went into the Confirmation document and the price the house has just sold for. The house sold for less than it was valued at last year. If that was the case the there would be no Capital Gain?

There would be no capital gain - and no need to declare the disposal unless you are completing tax returns for another reason in which case the disposal must be declared.

Jeremy535897

If there is a capital loss, and you or your sister might make capital gains in the future, then it would make sense to transfer the house to you and your sister as legatees, and then sell the house. You could claim the capital loss, but there are time limits:
https://www.gov.uk/capital-gains-tax/losses

jimmo

Jeremy535897 said:

If there is a capital loss, and you or your sister might make capital gains in the future, then it would make sense to transfer the house to you and your sister as legatees, and then sell the house. You could claim the capital loss, but there are time limits:
https://www.gov.uk/capital-gains-tax/losses

Are you sure the OP can do that?
It seems that the will instructs the executor to sell the house and distribute the (net) proceeds between the beneficiaries.

Jeremy535897

jimmo said:

Jeremy535897 said:

If there is a capital loss, and you or your sister might make capital gains in the future, then it would make sense to transfer the house to you and your sister as legatees, and then sell the house. You could claim the capital loss, but there are time limits:
https://www.gov.uk/capital-gains-tax/losses

Are you sure the OP can do that?
It seems that the will instructs the executor to sell the house and distribute the (net) proceeds between the beneficiaries.

A will can be varied, but looking back at the first post, I agree that it is unlikely that this could be achieved, given the court was involved.