Capital Gains Tax on a house share sold in Probate

Roy1234

A house is held in two equal shares by husband & wife, i.e. Tenants in Common.  The husband dies in 2019, when it is valued at £100k for probate purposes (IHT etc).

The late husband's Will leaves his half share to his children from a previous marriage, but gives his surviving wife the right to remain living there until she dies, thereby delaying its sale.  She later dies and the house is sold in 2015 for £180k, having risen in value.

So the late husband's half share has risen from £50k to £90 over those 5 years.

Is it correct that before that share can be distributed to the late husband's two surviving children & two grandchildren, Capital Gains Tax must be settled?  If so, can anyone give the calculation, allowing for costs of the late husband's probate and his half share (I assume) of estate agent & conveyancing fees?

Keep_pedalling

No, his will set up an immediate post death interest trust and legal ownership of his share was legally owned by the trust, however beneficial ownership remained with his wife. This means his share of the house formed part of her estate for tax purposes so is exempt from CGT. 

His children are classed as remaindermen and would not actually inherit under the death of their step mother.

Jeremy535897

As the wife had a life interest, and assuming she occupied the house as her main residence, there is no capital gains tax on her death and there is a capital gains tax free uplift on the value of the whole of the property.

Roy1234

Thank you both for your helpful replies.

Keep_pedalling - probate & the related trust matters were not dealt with until recently, as there was no immediate need in 2019 as the house could not be sold and so there could be no immediate distribution possible.  Does what you say about the trust owning his share still stand in this case? 

The husband's Will left his half share of the house equally to his three children or else passing to their children (his grandchildren) if that child had predeceased him.  At the point of his death, one of his children had died leaving two grandchildren, are they still remainderman?  The stepmother left nothing to the husband's children.  This was a 'blended family' where they married with previous children, had none further together, so each left their estate (half share of house) to their own children and left only a right to remain in the house to the other spouse.  

Jeremy535897 - the wife had a right to remain which I was told means slightly less than a life interest.  Does that change anything re the capital gain being treated as nil due to being her main residence once she died?

Jeremy535897

There should be no gain because all the property (both her share and the trust's share) should be deemed to be disposed of at market value at the date of death, but no capital gains tax is chargeable. If there is some deficiency in the trust deed, so that for some reason the right to occupy does not amount to a life interest, the main residence relief rule in section 225 TCGA 1992 should relieve the gain in any case.

Roy1234

Jeremy535897 - thanks!  Googling had led me to statements about the share held in trust being treated as passing at market value to the beneficiaries at the date of death, but that had left me wondering if that still meant they could be charged CGT for the gain when later sold.  Great to hear not, and that TCGA92/S225 you refer to 'extends private residence relief to gains accruing to trustees on the disposal of settled property'.  Thanks again.