Capital Gains Tax

naomishaw92

My mother in law passed away in Feb 24 naming my husband and SIL 50% beneficiaries of her estate. They are also both executors of her will. 

This 'estate' consists solely of a house now worth around £140/150k.

When she passed away, the valuation for probate was £110k. They have accepted an offer for £140,000 making a gain of £30,000.

My question is, neither were ever named on the deeds of the property, the plan was always to sell. Will they have to pay Capital Gains on the sale? The deeds will go from MIL's name to the new owner. 

We are getting mixed answers from various people, some say because they are carrying out the will as executors they are only inheriting the cash from the sale rather than the house itself, others say yes they will be liable for CGT.

We have no issue either way, it's just very difficult to understand the lingo on HMRC's website. 

p00hsticks

AS I understand it as the property is still in the name of the deceased the estate will be subject to CGT, rathe than the two beneficiaries. The estate has its own CGT allowance. 

I'm not sure if there is a way of retrospectively amending the value declared at probate if the estate is below the IHT threshold - it's a subject that comes up from time to time over on the Death, Funerals and Probate part of the forum but I can't recall the conclusion. 

For others reading, the general advice I've seen given is that in similar circumstances (where the estate is below the IHT threshold and the intention is to sell the property straight away) it is better to err on the high side when valuing the property for probate to avoid such a CGT liability. 

Bookworm105

unless the legal ownership of the property has already been changed into the names of the beneficiaries then "you" are now selling it as executors of the estate and therefore it is sale by the estate, not by the "beneficiaries". You yourself state that the deeds will go from mother's name to new purchasers name, so it is an estate sale.

the estate gets one CGT allowance 

where no inheritance tax was paid by the estate then the probate value has not yet been formally agreed by HMRC 

HMRC will not accept a subsequent increase in the probate value to eliminate subsequent CGT where there was a gain in value (they will accept a reduction however !)

the estate therefore must submit a CGT return declaring the 30k gain and pay the tax due within 60 days of the completion date of the sale 

if you wish to change legal ownership to the beneficiaries then each person would have to do their own CGT declaration and could claim their own allowance, although obviously that must occur before the sale..

naomishaw92

Bookworm105 said:

unless the legal ownership of the property has already been changed into the names of the beneficiaries then "you" are now selling it as executors of the estate and therefore it is sale by the estate, not by the "beneficiaries". You yourself state that the deeds will go from mother's name to new purchasers name, so it is an estate sale.

the estate gets one CGT allowance 

where no inheritance tax was paid by the estate then the probate value has not yet been formally agreed by HMRC 

HMRC will not accept a subsequent increase in the probate value to eliminate subsequent CGT where there was a gain in value (they will accept a reduction however !)

the estate therefore must submit a CGT return declaring the 30k gain and pay the tax due within 60 days of the completion date of the sale 

if you wish to change legal ownership to the beneficiaries then each person would have to do their own CGT declaration and could claim their own allowance, although obviously that must occur before the sale..

Thank you for this. 

Can I ask how we calculate the CGT on the estate? We have used the calculator on the Gov website, but it's really only for individuals as it asks for tax free allowance etc and how much we've earnt in the last year. It also asks for your share of the sale etc. 

Would we combine incomes/tax free allowances to calculate this? 

I am really struggling to find any information on the Gov website that is easy to understand and clear!

kentboy101

Sounds like the valuation for probate was way too low!

Bookworm105

naomishaw92 said:

Bookworm105 said:

unless the legal ownership of the property has already been changed into the names of the beneficiaries then "you" are now selling it as executors of the estate and therefore it is sale by the estate, not by the "beneficiaries". You yourself state that the deeds will go from mother's name to new purchasers name, so it is an estate sale.

the estate gets one CGT allowance 

where no inheritance tax was paid by the estate then the probate value has not yet been formally agreed by HMRC 

HMRC will not accept a subsequent increase in the probate value to eliminate subsequent CGT where there was a gain in value (they will accept a reduction however !)

the estate therefore must submit a CGT return declaring the 30k gain and pay the tax due within 60 days of the completion date of the sale 

if you wish to change legal ownership to the beneficiaries then each person would have to do their own CGT declaration and could claim their own allowance, although obviously that must occur before the sale..

Thank you for this. 

Can I ask how we calculate the CGT on the estate? We have used the calculator on the Gov website, but it's really only for individuals as it asks for tax free allowance etc and how much we've earnt in the last year. It also asks for your share of the sale etc. 

Would we combine incomes/tax free allowances to calculate this? 

I am really struggling to find any information on the Gov website that is easy to understand and clear!

the CGT rate for estates (sales by a "trust") is 24%
therefore there is no need to consider how much of the lower rate tax band is available based on "income" as that is irrelevant since there is no lower rate to start with and there is only one seller, the estate.

Trusts and Capital Gains: work out your tax - GOV.UK

It is why transfers to beneficiaries who then sell the property may be done instead of letting the estate sell itas that can result in a potential tax saving.
The tax saving obviously needing to be measured against the legal costs of doing so (and whether there is enough time to do so)! 

estate sales get only one 1,500 allowance and loses out on the 18% rate (that rate is applicable to a maximum of the first 37,700 of the taxable gain for a real person, but not an estate)

sales by direct owner get 3,000 allowance per owner and saves a max of £2,262 in tax per owner IF the owner has the maximum amount of lower rate CGT band available ie 37,700 @ 24% compared to 37,700 @ 18% so 9,048 - 6,786 = 2,262