Capital Gain Tax after House Sale

MyxHob

My wife’s sister died in 2013. Her will left half of a jointly owned house shared with her husband to my wife. I’m not aware of any valuation on the house at that time. Her widower remained living in the house until his death in 2022. His estate was left entirely to charity with my wife as executor. Shortly after his death the property was seriously damaged by water leakage following a period of frost. Most of the renovation was carried out under the terms of the home insurance and was completed at the end of last year. The property was sold two weeks ago.

We are trying to find out what my wife’s liability for Capital Gains Tax is likely to be and whether it will be based on the total value of the property or on the proportion of the property that she inherited under her sister’s will.

My wife has inherited nothing from the late husband’s estate so did not really “own” the whole property.

Thanks for any advice

Keep_pedalling

Did your SILs will give her husband the right to live in the house? If, as usual, it did then her will created an immediate post death interest trust, and your wife would not actually have inherited until his death so any CGT calculation would be based on the value at the date of his death rather than the death of your SIL.

MyxHob

Yes, as you say there was a life time interest for husband to continue living there. Thanks for that. However we're more keen to find out whether the CGT will be calculated on the WHOLE value of the house or the half that my wife inherited

poseidon1

MyxHob said:

Yes, as you say there was a life time interest for husband to continue living there. Thanks for that. However we're more keen to find out whether the CGT will be calculated on the WHOLE value of the house or the half that my wife inherited

Base on your response to @Keep_pedalling, the entire property gain will be measured by reference to the probate value on death of the husband in 2022. 

 The husband is deemed to beneficially own the entirety of the property on his death, by virtue of his personally owned half share plus the other half in which he had a life interest. Both halves received the 2022 market value uplift on his death.

A couple of ancillary points the tax is payable within 60 days but there are two computations, one for the deceased estate and the other for the now terminated trust in your wife's favour.  

You say the estate goes to charity . Some pre sale professional advice could have rendered the Charity's half exempt, but with the sale now concluded the opportunity  has likely passed. However ensure the estate accounts are meticulous when dealing with the distribution of the husband's estate to charity. If necessary enlist an accountant to do it.

MyxHob

Thsnks for that. 

poseidon1

OP in case you have reason to revisit this thread, I would further point out that formal self assessment tax returns will also need to be lodged to report these gains.

It is the tax returns that provide HMRC with the opportunity to properly examine the basis used for calculating the gains ( and tax thereon), which they may choose to challenge if they are not satisfied with any element of what you submit.  Therefore an  SA900 will be required for the estate and your wife maybe able to get away with a personal SA 100 return for herself in respect of the terminated trust gain.

Finally, since it is 3 years since death, if the estate has accrued untaxed bank deposit interest exceeding £500 per year, there maybe outstanding income tax due for the estate administration period not yet assessed. This and the requirement for formal tax returns maybe another reason to get a professional tax accountant involved.