CGT - how to calculate if property part gifted, part inherited?

bicyclist

Widowed mum added two children to her property deeds in 2016. She passed away a year ago. So we each 'owned' 1/3 from 2016→2025, then 1/2 each 2025→2026 (estate was split 50/50). On the Gov.uk CGT calculator you can select gift OR inheritance - how do we work this out? The property actually sold for £4k less than the probate value, so I'm not sure how that figures into things either. Do we subtract £2k (each) from the increase of one third of the property from 2016→2025? Are we able to 'split' these figures on the actual submission form (in fact - should we??)

Keep_pedalling

Have you a valuation for the property in 2016? If not you are going to need to get one. Assuming you did not change ownership when your mother died there will be no CGT liability on your mother’s share as it was still owned by the estate not you and your sibling.

Each of your CG should be based on the gain in value of your 1/3rd share in 2016 and the sale price.

bicyclist

https://forums.moneysavingexpert.com/discussion/comment/82086283#Comment_82086283

Yes, we have an estimate. So we don’t pay anything on the extra 1/3 (well, 1/6 each) we inherited? (Probate to sale was just under a year).

sherlock228

https://forums.moneysavingexpert.com/discussion/comment/82086367#Comment_82086367

on the assumption that the 2/3 given to the two children in 2016 was a gift (ie neither child paid any actual money to their parent) then the fact parent continued to live in the property for the rest of their life means that gift was GWR "Gift With Reservation". Technically parent continued to benefit from using the asset (house) she had partly given away.

The tax implications of that are that the "gift" never leaves her estate for IHT purposes, but the 2 children become liable for CGT from the date of gift on their respective shares. Note that further assumes that it was not the main home of either child and so neither is able to claim private residence relief (PRR) against their ownership period.

It is a classic example of the "double tax whammy" when DIY inheritance planning actually makes the situation worse. It makes the children liable for CGT that they would not have faced had they just inherited the house at death given the estate was not liable to IHT anyway.

Each child is now liable for CGT on the gain between value at date of gift in 2016 and 2026's sold price on their respective 1/3 shares.

(We will take as read that at date of gift both children were over the age of 18 and thus legally allowed to own property in their own name without needing to have a trust in place to do so)

Note carefully, each of the children must make their own separate declaration of CGT and pay what they each owe within 60 days of the date of sale (or each will get a penalty)

Report and pay your Capital Gains Tax: If you sold a property in the UK - GOV.UK

bicyclist

https://forums.moneysavingexpert.com/discussion/comment/82086462#Comment_82086462

Ah, ok thanks. We (not knowing any better) used the whole house value for probate - but it still came in under the threshold so I assume that doesn’t effect things?

sherlock228

https://forums.moneysavingexpert.com/discussion/comment/82086913#Comment_82086913

please see previous response - I have now edited it to correctly set out the position

declaring the whole house value at date of death was the correct course of action due to the existence of the two GWR. From what you say the total value of the estate was less than the IHT threshold so the fact the property sold for less than probate value is now irrelevant as that fact does not alter the nil IHT position

on the assumption neither child has a claim for PRR then each child is now liable for CGT on the gain (if any) on their respective 1/3 shares since 2016. The clock is ticking in terms of reporting and paying that.
also appreciate that if either child is already required to do an annual tax return, then that person must include details of the sale on their tax return even allowing for the fact they have already declared it and paid the tax. (The point being they may have other gains in the tax year which would be affected by the property gain so it must be repeated on the tax return calculation)