CGT/Inheritance Tax

JimmyStew

Hi,

My Grandad sadly passed away just a month ago and my Dad is the executor on his will. He had approximately £200,000 in stocks and shares portfolio, and he has asked for this to be split between my Father and my Uncle. My Dad has asked me to see if there would be any implication on CGT or Inheritance tax of doing this as a preliminary check before visiting the solicitor ...

My Grandad lived with my Grandma and their house is approximately worth £475,000. He did sort his will out so they were living "tenancy in common", therefore my Dad and Uncle receive 25% of the house each.

Would there be any CGT on inheriting the stocks and shares? If so, at what rate would this be?

Please could someone help as it is getting my Dad down at a time when he is already very vulnerable.

Many Thanks

Jim

CLAPTON

I assume your grandmother is still alive?

so his estate is
half the house 237,500
plus 200,000 in S&S
total 437,000
IHT allowance was 300,000
so taxable amount 137,000 at 40%

no CGT is payable on the shares

discuss with the solicitor the house valuation as it may be argued that the value of an occupied house (i.e. you grandmother) is much less than a house without.

Sadly, your grandads decision to divide the house like that may be very expensive for you as when it is eventually sold (after your gran moves out) your dad and uncle will be liable to CGT at the time.

JimmyStew

CLAPTON wrote: »

I assume your grandmother is still alive?

so his estate is
half the house 237,500
plus 200,000 in S&S
total 437,000
IHT allowance was 300,000
so taxable amount 137,000 at 40%

no CGT is payable on the shares

discuss with the solicitor the house valuation as it may be argued that the value of an occupied house (i.e. you grandmother) is much less than a house without.

Sadly, your grandads decision to divide the house like that may be very expensive for you as when it is eventually sold (after your gran moves out) your dad and uncle will be liable to CGT at the time.

Why will they be liable to CGT on the house? Surely then everyone who inherits a house is liable to CGT based on what you have said?

My understanding is that "Tenancy in Common" is a way to reduce your IHT liability, which was why I guess he has set it up in that way...

Because they were a married couple, their IHT band doubles effectively, so anything up to £600,00 is out of IHT... I think I am right in saying that.

localhero

There is never CGT on property upon death.

Whether there is a future liability to CGT on the share of the house left by your grandfather will depend on what the Will says.

If it was a straightforward gift, then Clapton is right. There would be no immediate liability, but the increase in value from the date that your grandfather died until it is eventually sold would be liable to CGT.

However, if your grandfather gave a 'life interest' or right to remain in the property in his Will to your grandmother then when she dies there would be no CGT liability on the share of the house from your grandfather.

CLAPTON

JimmyStew wrote: »

Why will they be liable to CGT on the house? Surely then everyone who inherits a house is liable to CGT based on what you have said?

My understanding is that "Tenancy in Common" is a way to reduce your IHT liability, which was why I guess he has set it up in that way...

Because they were a married couple, their IHT band doubles effectively, so anything up to £600,00 is out of IHT... I think I am right in saying that.

anyone who is left a house and
it rises in value
and they don't live there
will be liable to CGT when they sell

splitting the house into tenancy in common sometimes leads to more tax not less.... don't always believe generalisations that you read; you need to look at each specific case.


The new law about 600,000... in fact this is exactly why splitting it into tenant in common is a bad idea...

e.g. at the moment they have a IHT liability of 40% of 137,000 plus a potential CGT liability on half the house when they sell.

lets suppose (with due respect to the OP) that granny dies tomorrow.
no CGT to pay as house wont have increased in value
and no IHT because granny estate is less than 312,000

however, had the left the house as joint tenants
on first death there would be no IHT on the 200,000 as its less than the allowance of 300,000 but 2/3 of the allowance was been used
on second death the estate is worth 437,000 (full value of the house)
but allowances are 312,000 for granny plus 1/3 unused by pop so allowances are 312,000 plus 1/3 of 312000 = 416000

so tax is 40% of 21,000 rather than of 137,000... too late now however.

localhero

Putting the property into tenants in common is often necessary where there is a desire to safeguard the property from long term care fees.

In addition, there may be children from a previous relationship, or the fear of the surviving spouse remarrying or having further children.

It need not mean more IHT either. Where a gift is made on first death to the children but postponed until the surviving spouse has died, then the couple can claim 2 full nil rate bands. If the gift isn't postponed, then additional IHT would arise as well as leaving the surviving spouse vulnerable.

If couples box clever and obtain decent professional advice with their Wills, owning the property as tenants in common has many advantages, whilst still preserving 2 full nil rate band allowances.:T

It is absolutely crucial that decent professional advice is sought, so that the Will is tailored to the exact circumstances.

harryhound

Hi local hero,

In the "old days" (ie about a generation ago) people were allowed TWO houses free of Capital Gains Tax. House one was the owner's principal private residence. House two was a house occupied rent free by a "dependant". However the very fact of millionaire widow(er) single parent had to depend on a rent free house, owned by their offspring, made them "dependant".
Obviously there are not a lot of homes that still qualify for this CGT relief:eek:.

Are you saying that, as from last autumn, it is now possible to leave the widow(er) with a watertight life-interest trust, that will be CGT proof, even if the house has to be "downsized" during her/his life time? It will count towards the combined IHT "couple" zero rate allowance (currently 312,000 x 2 = 624,000 and increasing annually)? The house should be care home fee resistant, as it is jointly owned by a widow(er) and an interest in possession trust?

Harry.

PS There are two programmes on BBC Radio 4 at 11:00 & 12:04 this morning on the theme of "clearing the house" after a parent has died.

localhero

Hi Harryhound,

I am not familiar with this CGT concept of a generation ago - though Jimmo would probably put you right on that.

But on your second point - where widow(er) is living in (let's say a £600,000) main home where the first half of the house has been left to the children.

Then (and this is the crucial part) if he/she has been left a life interest, then if they downsize then any gain will be free of CGT.

If there was no life interest (and the kids therefore could demand their share on first death), then CGT would be incurred if the property got sold later and it wasn't the kids' main home.

And yes, the whole house would also be protected from nursing fees.

After the 'Osborne budget' most of my clients who had discretionary will trusts have switched to this type this type of Will because of its versatility. (As well as the fact they already owned the property as tenants in common).

It is arguably better than the discretionary trust as it's not only IHT efficient, but it safeguards the entire home rather than just half of it. It is also cheaper/simpler to maintain the trust between first and second death.

Unfortunately I missed the radio 4 programmes.

harryhound

Re "clearing the House", my favourite bit was the story of the "estranged daughter"; who flew in from South Africa and tried to pinch all the antiques; together with the "skeleton in the cupboard" stories. [I've got one of those of my own, a turning point in a relative's life, that could have changed the whole development of the family, but as one of the parties is still alive; I'd better keep quiet - Don't trust your relatives!] .

localhero

Every single horror story I hear about doesn't surprise me at all as I see a lot of that type of thing.

I wrote a Will for an old lady once - two sons and a daughter. Two sons living miles away and daughter who used to come and look after her.

I received a call one morning from one of the sons (who was an executor) requesting the Will from my safe as the old lady had died.

I arrived about midday - and the two sons were at the old lady's house. They had obtained two valuations for the house and I could see a few pieces of antique furniture in a car on the drive.

When I asked when the old lady had died they told me it was that morning!

So nothing really surprises me anymore.

harryhound

localhero wrote: »

Hi Harryhound,

I am not familiar with this CGT concept of a generation ago - though Jimmo would probably put you right on that.

Ah I've found the reference to the old Death Duties/CCT allowances. As these changed in the 1980's there will not be a lot of estates that still benefit on the second death.

http://www.moneysavingexpert.com/protect/tax-questions-4#gains

(It is the 4th CGT question)

http://forums.moneysavingexpert.com/showthread.html?p=4739013

(if the relative was fit and healthy and under retirement age in 1988, it looks like it applied to mothers only - how politically incorrect)

Harry.

PS
"And yes, the whole house would also be protected from nursing fees."

Officially "care" fees; in theory the "nursing" element is the responsibility of the NHS:rolleyes:? ?