Did I overpay CGT?

Bookworm105

pkmid said:

I had put the
house value as £340000
sold for £365,000
£5k in costs to sell
capital gain tax annual exempt amount £6k
taxable gain £13,754
multiplied by 18% tax rate = £2,475.72
income for 23/24 £31k
Personal allowance for 23/24 tax year £12,570 (this part is what has confused me)


problem is HMRC won't tell if you've done it right or wrong. I submitted the payment for £2,475.72 plus the late payment. The letter from HMRC telling me about capital gains tax was addressed to myself personally with my national insurance number as the reference. It didn't address me as the estate or anything. If the personal allowance is not allowed then I have under paid by £605.40.

you need to start from scratch. The first thing to be clear on is the estate sold the house, "you" did not. Please note the correct jargon, you are the nominated personal representative of the estate. All contact with HMRC is therefore in your capacity as personal representative for a property owned by an estate, not as (joint) owner of a property registered in your own name.

the gross gain is 365-340-5= £20,000

The rule is the estate would be entitled to (one) CGT allowance provided the sale takes place either during the tax year of death or in the subsequent 2 tax years. After then the estate gets zero allowance. 
So key questions: a) did mother die on or before 5th April 2021 (20/21 tax year) and/or b) was the date of exchange of contract for property sale on or after 6th April 2023 (so fell into 23/24 tax year)?
Capital Gains Tax rates and allowances - GOV.UK (www.gov.uk)

For the estate to get an allowance at all, dates would be either death in 20/21 and sale by 22/23 OR death in 21/22 and sale by 23/24
If we assume she died after April 21 and contract exchange was was in 23/24, the allowance for that year is £6,000, the net taxable gain would therefore be 20,000 - 6,000 = £14,000 (or 13,754 if that is your actual figure using accurate costs)

As the sale was made by the estate, the CGT rate itself is set at 24%. It is irrelevant what income tax band you personally belong to, as the correct rate is fixed at that applicable to a personal representative selling a residential property (see link above)

Tax due therefore 14,000 x 28% = £3,920

Has that been paid to HMRC yet? If yes, I assume it was paid from your personal bank account rather than an executor account (or your mother's bank account) so was that before or after you paid over to your brother his share of the property sales money? (He may owe you some back if it was after)

Note for CGT purposes the "date of disposal" is the date the contract was exchanged (went unconditional), it is not the (later) date of completion of the property sale, unless there were unusual conditions attaching to that completion.

( if contract exchange was on or before 5th April 2023 then the above calculation would be different as different rates apply)

Bookworm105

if it helps you understand the "personal allowance" then using your figures 
the property has a net CGT gain of 13,754

you have a pre tax income of 31,000
the (income tax) personal allowance for that year was 12,570
so you have a (income tax) net taxable income of 18,430

for CGT banding purposes ONLY, your "total (net) income" is 18,430 + 13,754 = 32,184
the higher rate (income) tax band (23/24) starts at 37,701 therefore, for CGT purposes, you are a basic rate taxpayer as your "total income" is below that level;

basic rate CGT is 18% for a (non estate) owner so all of the gain would be paid at 18% 
13,754 @ 18% = 2,475 payable

However, that position is still wrong because:
 a) it wasn't you that sold the property, the estate did and its position is different
and
b) even if it was not the estate that sold it, and you did genuinely sell as the beneficial owner in your own names, "you" have paid tax on the whole gain, but the property is co-owned by your brother who is exempt, therefore that tax amount is an overpayment anyway. In your first post you say the house had increased by about 30k since death, the gain therefore needed to be split between you and brother as the starting point of the calculation, so, for example, with 50/50 ownership:
- your calculation would be 30 / 2 = 15 - cgt allowance 6 = net CGT gain 9 (not 13)
- brother's calculation would be 30 / 2 = 15 - private residence relief (15 x lived in period / ownership period) = 0

you pay tax on 9, brother pays nothing assuming the house was left equally to both of you and put in your names before sale

sheramber

pkmid said:

BarelySentientAI said:

pkmid said:

thegreenone said:

pkmid said:

sheramber said:

pkmid said:

Hoenir said:

The estate has no personal allowances for income tax. 

Hi, I added in the calculator that I had inherited it. Was I not meant to include the personal allowance when asked on the calculator?

You  weren't selling it as a personal  item.

You didn't own it and had not inherited it as it was still in  your mother's estate.

You inherited the value of it once it was sold and the estate  settled.

You would have inherited it if it had been transferred to your name .

You were selling it as Personal Representative of the estate so personal allowance is not relevant .

Ok but by that logic what option do you pick on the calculator?

This is the one I chose.   You are the Property Owner because you are the Executor of your Mum's Estate.

You clicked on the right one but, as above, your mother's estate is liable for the CGT and it's nothing to do with your personal allowance. 

Contact HMRC.

Thank you, do you think that means I owe more than I thought? I'm on hold with HMRC at the moment 42+ minutes and counting.... When I say "I owe" it can be used as "the estate owes" as it was only me.

Be careful thinking that - it isn't the same thing.  People have got very worried about debts that the estate owed because they thought (as the only executor or only beneficiary) that they would have to pay it out of their own money.

What this is all about is how much tax the estate should have paid before distributing the residue.

Similarly how do you pay from an estate that is non-existent since all assets/values have been shared out?

You explain to the beneficiaries that a mistake was made and ask them to repay the overpayment

Alternatively, the executor is responsible for dealing with estate correctly and would be liable for any amount due.