Selling a house to pay Inheritance tax?????

kunash

lets say for example, my mum owns a number houses which she rents out. they are jointly owned with my aunt, who has passed away.

there is a large IHT bill to pay.

much of the liability can be found from liquid assets

but two houses have to be sold, which are rented out.

normally, if one sells a home which you do not live in, you have to pay capital gains tax.

if we had to sell two homes to pay the IHT bill, would we also have to pay capital gains on the proceeds of the sale?

i think i know the answer, but am just checking, thanks.

Doozergirl

I should think so!!

You'll pay tax on all forms of income. Whether it's income tax, CGT or IHT you don't not have to pay one because you have to pay another.

kunash

ok just what i thought, so basically, you pay 40% capital gains on say a house worth £300000 to the treasury , equals £120000, then you pay a further 40% on that same house in IHT to the treasury ( i am taking into consideration the 300k threshhold ), so that is a further £120000.

so a house you have to sell to pay IHT, which you dont live in, and is worth say 300000, you have to pay 240000 in taxes.

i hate taxes

Doozergirl

Capital Gains rules have just changed. It's an 18% flat rate. Even then, it's on the Capital Gain, not the value of the property. So it's 18% of the difference between what you sell it for and what you paid (plus the annual CGT allowance for each person that owns the property)

You're not paying IHT either on the same house. You're paying IHT on a different form of income entirely. That will be the difference between the IHT threshold and the value of the estate.

The nice thing about tax is that if you're paying quite bit, you're also earning quite a bit. And both of those incomes you refer to are likely to have been made from not doing very much for them

Hang on. If it is the same property, then CGT is only payable on your mum's portion of the house. IHT is payable on your aunt's.

silvercar

No CGT on death! Only inheritance tax.

Say a house was owned by two people (not spouses) as tenants in common. Say the house was bought for 100k and sold on the death of one party for 300k.

For the person still alive: the gain (200k) would be split so 100k would belong to the person still alive and they would pay CGT on that (18% flat rate less CGT allowance of 9,600 assuming they never lived in it as their main home).

For the deceased: their half of the house is worth 150k and this value is added to their estate and liable for IHT (40%) on any value of the estate over the IHT threshold (300k for singles, upto 600k if a transfer between spouses of the allowance has taken place earlier).

neverdespairgirl

No CGT on the houses, unless the value rises significantly between probate and sale.

kunash

ok thank you, so no CGT on death, that is something at least. and the houses haven been in the family since about 1880, yes nearly 130 years, so have never really paid anything for them, except when they were built.

My great great grandmother was one of the original buy to letters , and built up an amzing [portfoilo pre 1900 of up to 50 houses, which she built from scratch, and paid for from hard graft.

due to IHT this has now dwindled to about 10 houses, but still a nice income.

moneysavinmonkey

If your aunt had a large portfolio of properties - Were the lettings not run as a business??

Always best in such situations to get some professional advice. You really should see a tax accountant - sounds like your aunt should have seen a tax accountant a long time ago if her portfolio has dwindled by 4/5ths due to IHT!!!

Whilst I believe everyone on these forums is well meaning, it is afterall an anonymous forum and it is not possible to tell between those who know what they are talking about and those who are just making an informed (or uninformed!) guess.

Seek professional advice for important matters involving large sums of money, and especially where taxes are involved.

moneysavinmonkey

kunash wrote: »

ok thank you, so no CGT on death, that is something at least. and the houses haven been in the family since about 1880, yes nearly 130 years, so have never really paid anything for them, except when they were built.

aside from the build costs. presumably they have required some fairly substantial modernising - indoor bathrooms, wiring/electrics, insulation, re-roofing since 1880!!
Should these costs not be deducted from the Capital gain?
- I don't know but a tax accountant can tell you!!

Doozergirl

I misread the OP. I corrected myself in the last line of my previous post.

kunash

yes it was always run as a business. in the older days, rents were always capped, so you never made any money at all, well, hardly any, and tenants had life long tenancies.

the properties were just handed down to the next generation, and no provisions were ever made for IHT purposes. I once asked my aunt about making such provisions, and her reply was, when she was dead she didnt care what would happen to them, because she would be no longer here.
and that was her final word.