Capital gains tax question

FlorayG

I have a property on a BTL mortgage. I know if I sell it I pay CGT.

If I make a will that says property to be sold and proceeds given to person X, does X pay CGT? Or does my estate pay it before they get their bequest? Or is it not paid because X didn't buy it in the first place?

Thank you

user1977

There's no CGT on death, but there is potentially Inheritance Tax on the estate as a whole.

(also it would be odd for a Will to direct that the property is sold, you'd normally just say person X gets the house - they can figure out for themselves whether to take it or sell it)

GDB2222

It looks like that CGT exemption on death may not last much longer.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82056530#Comment_82056530

Indeed coupled with aligning of CGT with income tax rates, a potential Land Value tax to replace council tax, and of course IHT on pension pots from the 2027, the tax outlook for the country's already stretched middle classes is looking quite bleak.

https://www.msn.com/en-gb/news/insight/burnham-allies-eye-cgt-overhaul-amid-double-tax-fears/gm-GMCE48CC73?gemSnapshotKey=GMCE48CC73-snapshot-1&uxmode=ruby&cvid=6a43cffed0164cbc801e6b6af5dffb7d

bobster2

https://forums.moneysavingexpert.com/discussion/comment/82056530#Comment_82056530

Indeed. But even with the exemption gone, my hunch is that they would keep CGT Private Residence Relief for the deceased's main home. However, that of course would not apply to the OP's BTL.

Keep_pedalling

Which part of an estate pays tax can be dictated by the terms of the will. At the moment that just concerns IHT but that should not be different to any other taxes applied to estates. If you want to specify that certain bequests are paid out free of tax you can do that but of cause that means a smaller inheritance for other beneficiaries.

Leaving people specific properties in a will is not always a good idea as it can lead to someone being unfortunately disinherited if for example that asset was sold prior to your death to jest care costs. If can also lead to serious conflict between beneficiaries.

For example Mr Smith has a £500k home and £500k in savings. His will leaves the home to his daughter and the cash to his son who also has LPA for his father. One year before he dies he has has lost his mental capacity to make decisions and needs to go into care and his son sells the home and uses the proceeds to fund the care costs which eats up £100k in that year.

When he dies the clause leaving his home to his daughter fails and the son inherits £900k and the daughter gets nothing.

Please do not cut corners with your will and use a solicitor to make one, never DIY and avoid unregulated will writers. Solicitors will point out all the possible pitfalls and all the what if situations that you have not even thought about.

p00hsticks

https://forums.moneysavingexpert.com/discussion/comment/82056522#Comment_82056522

It would be advisable not to mention any particular property in a will at all, as if the person then moved house, or needs to sel lthe prerty to pay care fees etc, the bequest would then fail,.

Bigphil1474

I would agree about the leaving houses in a will. I would say it is less normal to leave the house, unless the house has some special place in the family history. Normally a will will leave the proceeds of sale from the house to the beneficiaries. That way no CGT would be applicable, and the executors sort it all out and just give a tax free lump sum to the beneficiaries. They would also retain any first time buyer status they may have. If you are left a house the clock for CGT starts ticking when the house becomes yours until it is sold and you (almost certainly) are no longer a FTB.

It's also worth noting that CGT rates are much lower than IHT rates, so there will be some estates that will need to be treated differently depending on which way the tax falls better for the individual.

Is it that CGT is an exemption on death, or IHT takes precedence? Fortunately, most estates are zero rated for IHT.

Edit: Just to add, my will was done for free through my trade union. It's largely a DIY online process but my estate is pretty straight forward, and I'm under the IHT threshold for the next 20 years at least.

user1977

Is it that CGT is an exemption on death, or IHT takes precedence?

Death isn't a taxable event for CGT purposes, so it's effectively a "free" gain up to the date of death (but the value gets put into the pot with the rest of the estate for IHT purposes).

FlorayG

I'm not sure I've had a clear answer 😉

There won't be any inheritance tax, everytthing else is going to charity ( and anyway, it's a theoretical question)

sherlock228

https://forums.moneysavingexpert.com/discussion/6674887/capital-gains-tax-question

will says property sold and proceeds given to person X,

that means the sale was made by the estate so falls inside IHT and outside of CGT
X receives a lump sum of money from the inheritance on which X owes no tax at all in their own name

CGT would only be paid by X if
a) the property was not sold and was instead transferred into the ownership of X
and
b) X did not live in the proeprty as their main home for entire period it was owned in the name before X then sells it at a later date

where a) and b) apply then X pays CGT on the gain between probate value (ie. deemed acquisition /"purchase\" cost) and the actual selling price.

- ,