Likely CGT / IHT ???

bubby08

Hello all, I’m wonder if you can help,

I have tried to get the correct information and even calculated the CGT calulator on the HMRC website it said there was no CGT due, but I am just trying to get some clarity, I will and explain as simply as possible.

Person A receives a property as inheritance 10 years after the death owner Person B.

Immediately after inheriting the property, Person A then transfers it to their daughter, Person C


At the time of the death of Person B the property approximately may have been valued as 180,000
although no records exist

- When Person A inherits the property it’s approximately valued at 260-280,000

- Person A at no point lives in the property or has any change to their primary residence 

- Neither Person B or C have a mortgage or own a property elsewhere

- Person C does not sell the property but moves into it and it then becomes primary residence. 

Can anyone advise on what if any CGT/IHT is due as a result of these transactions?

If CGT/IHT is due how would these would be calculated ?
If CGT/IHT Is due would this need to be settled before any of transactions are settled?


I really hope I have made this easy to understand. I really appreciate your help.

Thanks

Keep_pedalling

Person A would have a CGT liability on the £80-100k gain at the point of transfer to their daughter.

The 7 year rule would apply to the gift, so if person A died within 7 years of making the gift then the value at the time of transfer, less any unused annual allowance, would remain in their estate for the purposes of IHT calculation. Without knowing what other assets person A owns it is not possible to say how much, if any, IHT would be due

bubby08

Thank you for this, for the basis of this matter, let’s assume person A has now other assists, property or otherwise.

also can clarity the 7 Year rule and what you mean by “would remain In the estate’

Also you mentioned the CGT based on the property increase are you saying that figure would be subject to CGT and  if so how is the final CGT tax bill calculated and would it need to be paid before the transfer to Person C.

thank you so much for your reply

bubby08

Also a further question what would happen if there is not a valuation for the property at the time of death of Person B if CGT is calculated on increase in value, how can that be measured.

Thank you

Grumpy_chap

bubby08 said:

Person A receives a property as inheritance 10 years after the death owner Person B


At the time of the death of Person B the property approximately may have been valued as 180,000
although no records exist

- When Person A inherits the property it’s approximately valued at 260-280,000

What is the reason for the delay in A inheriting the property?

If this is because the estate of B was not finalised, it could make a difference to where the CGT lies.  From practical purposes, that difference would be moot if A is the sole beneficiary.

bubby08

Thank you for your question Grumpy Chap, yes for various reasons the Will what was unable to executed however this has now been done and Person A is now inheriting the property, I’m not sure if this changes anything?

Regards 

Grumpy_chap

It may do.
What is the reason the Will was not executed far quicker than 10 years?
Was there a life-interest for another party?

AIUI, if the property remained in the Estate for the 10 years, then the CGT falls to the Estate to pay.
If the property transferred to A 10 years back, then the CGT falls to A to pay.

If A is the sole beneficiary, then that all makes no practical difference.
If there are multiple beneficiaries, then the CGT falling to the Estate to pay means the bill arising may impacts other beneficiaries also.
Of course, in the latter, A may decide to simply pay the CGT in any case if trying to split it out will cause relationship breakdown.

Keep_pedalling

bubby08 said:

Thank you for this, for the basis of this matter, let’s assume person A has now other assists, property or otherwise.

also can clarity the 7 Year rule and what you mean by “would remain In the estate’

If you gift something above your annual exemption (£3000) and die within 7 years of that gift then for IHT purposes it would be included in the value of your estate, but as you say they have no other assets it would make no difference as the value is below their nil rate band (£325k)

The big problem here could be deliberate deprivation of assets if person A needed care and frankly if this is their only major asset giving it away would be a pretty stupid thing to do.

Also you mentioned the CGT based on the property increase are you saying that figure would be subject to CGT and  if so how is the final CGT tax bill calculated and would it need to be paid before the transfer to Person C.

thank you so much for your reply

CGT on the transfer of a residential property is charged at between 18 and 28%, the amount being charged depends on the income of the current owner but with a gain of £80 to £100k a substantial amount will be at the 28% rate (see link to calculator). 

On the assumption that person A has no other assets, then how are they going to pay this bill?

Keep_pedalling

bubby08 said:

Also a further question what would happen if there is not a valuation for the property at the time of death of Person B if CGT is calculated on increase in value, how can that be measured.

Thank you

It will be whatever value was given for the probate application.

bubby08

Ok a couple of questions to answer,
Grumpy Chap as mentioned Probate has only just been granted this wasn’t due to do with the interests of other parties but issues with the named executors. This has now been resolved. With no other beneficiary to the property. Nothing had been with the property during this period so I assume means this the property has stayed in the estate. In which case you mentioned CGT is down to the estate to settle how does an estate settle CGT if there is only the property itself?

Keep Peddling On the assumption that person A has no other assets, then how are they going to pay this bill? 

This is what we are trying to ascertain as the property needs at some point to be transferred to Person A this is the connundrum we are trying to solve as immediate payment of CGT is as prohibitive owning and repairing the property.

It will be whatever value was given for the probate application
In this statement do you mean that value of the property listed in the grant of probate is deemed as current value? 

But my initial question was how do they decide the value of the property over 10 years ago at the time of death of Person B? If the current value is around £280,000 how is the initial value defined at the time of death so a calculation of profit can be calculated, 

Keep_pedalling

bubby08 said:

Ok a couple of questions to answer,
Grumpy Chap as mentioned Probate has only just been granted this wasn’t due to do with the interests of other parties but issues with the named executors. This has now been resolved. With no other beneficiary to the property. Nothing had been with the property during this period so I assume means this the property has stayed in the estate. In which case you mentioned CGT is down to the estate to settle how does an estate settle CGT if there is only the property itself?

Keep Peddling On the assumption that person A has no other assets, then how are they going to pay this bill? 

This is what we are trying to ascertain as the property needs at some point to be transferred to Person A this is the connundrum we are trying to solve as immediate payment of CGT is as prohibitive owning and repairing the property.

It will be whatever value was given for the probate application
In this statement do you mean that value of the property listed in the grant of probate is deemed as current value? 

But my initial question was how do they decide the value of the property over 10 years ago at the time of death of Person B? If the current value is around £280,000 how is the initial value defined at the time of death so a calculation of profit can be calculated, 

I had assumed probate had been applied for 10 years ago, but if it is only being done now then you will need to obtain the historic valuation as well as current valuation, which can be sorted by using a RICS surveyor, which you will need to pay for.

Why does the property need to be transferred? If the beneficiary has no other assets then this is bonkers, and it is not going to be possible baring in mind they are going to have a massive CGT liability.