GCT - why? mentioned/liable

castle96 · 19 May 2019 at 4:51PM

Extract from sol's letter

"Further to your email of the 8 May and our subsequent chat in reception last week I confirm that if you decide to give your brother, as a base, the figure of £350,000 instead of £325,000 (agreed by HM Revenue & Customs) then the estate (not you personally) has made a gain of £25,000 and therefore would be liable to Capital Gains Tax.

However as discussed we can prepare a Deed of Variation (especially if you are considering giving your brother or his children/grandchildren a proportion of your inheritance) and this Deed of Variation will change the distribution of the estate in such a way that there will be no Capital Gains Tax liability.

Please therefore let me know whether you have decided to give your brother and his family a bigger share of the Estate and once you have settled on the figures/amount I will be able to draft the Deed of Variation for you to check, which will address at the same time passing a bigger share of the Estate to your brother and his family and therefore reducing your own estate future Inheritance Tax liability and mitigating Capital Gains Tax liability on your father’s estate.

I look forward to hearing from you with your thoughts on how you wish to proceed and if you do wish to give your brother and his family a bigger share of the estate there will be no consequences to you as the Executor with regard to Inheritance Tax or Capital Gains Tax as all of these will be addressed in the Deed of Variation. Although you are correct that a Deed of Variation must be signed within two years from your father’s death however in this case I would suggest preparing it sooner rather than later so that a potential liability to Capital Gains Tax can be addressed in this document."

Why is there any mention of CGT ? Why is the Estate £25k better off ? Why is CGT mentioned or applicable ?

Sister lives in house, is executor and beneficiary with me. Will says "house to sister, same value to me, 50/50 split with the rest. Total estate £900k. Probate and IHT sorted/agreed/

Why ANY mention of CGT ? The estate is the same (has not 'gained' £25K. Sister has 'lost £25k. I have 'gained' £25k

getmore4less · 19 May 2019 at 5:19PM

The letter is to your sister and you are the brother might have mentioned that at the top.

A gift of £325 should have a DOV anyway as it is quite risky to leave that as a PET on her estate that just inherited a house

What is being gifted?

That may make a difference

does she have £325k+ cash to give you from her share

I would ask for clarification why a gift creates a CGT liability, and the significance that £325k does not but £350k does

Tom99 · 20 May 2019 at 4:18AM

Just to confirm the estate has assets of £900k comprising a house valued at £325k for IHT purposes?
The will currently gives the two of you:

Sister: House (£325k) + £250k/2 = £450k
You: £325k + £250k/2 = £450k

Your sister is proposing to say she thinks the house she is getting is worth £350k not £325k?
Therefore the new split (according to sister) is:

Sister: House (£350k) + £225k/2 = £462.5k
You: £350k + £225k/2 = £462.5k

If the above is correct there can be no question of CGT because the house is not being sold. The house was left to your sister and will be assented to her. If the house was to be sold by the estate for £350k against a £325k agreed value for IHT then the estate would have made a gain of £25k some of which might have been subject to CGT.
The reason for the suggested DOV is that based on the probate value of the house your sister is giving your £12.5k of her inheritance she would otherwise be entitled to.

Sister: House (£325k) + £225k/2 = £437.5k
You: £350k + £225k/2 = £462.5k

Without a DOV this gift of £12.5k would stay as part of your sisters estate for IHT for the next 7yrs. Its not a great sum and hardly worth a DOV but is seems you may be passing some of your inheritance to your children so you may as well wrap up sisters gift in the same deed.

But your solicitor is wrong about CGT. Since your sister lives in the house even if she decides, once it it transferred to her, to sell for £350k or £400k there would still be no CGT.

If I understand correctly your gain is £12.5k not £25k.

Keep_pedalling · 20 May 2019 at 9:46AM

If the house is actually worth more than the value submitted to HMRC then the only additional tax that could be payable is IHT, and that can’t be avoided with a DoV.

How was the originally valuation obtained?

castle96 · 20 May 2019 at 9:52AM

thank you both. Certainly seems that solicitor has got it wrong !

Tom99
" If the house was to be sold by the estate for £350k against a £325k agreed value for IHT then the estate would have made a gain of £25k some of which might have been subject to CGT."

but even YOU mention mention CGT to the ESTATE. The house would belong to my sister, not the estate so …. ????

Sister...….. £House (£325) + 1/2 x £900 minus £650 then div by 2 (= £125) so £325 + £125 = £450

Me - Agreed house value £325 +£125 (same calc as above) = £450k

Sister wants to give me an extra £25 ffrom her cash/half, so £475 to me.

Still don't see why CGT even mentioned, whether on Estate or sister. House is not being sold anyway

getmore4less · 20 May 2019 at 9:53AM

Tom99 wrote: »

Just to confirm the estate has assets of £900k comprising a house valued at £325k for IHT purposes?
The will currently gives the two of you:

.....

Where does it say the house is £325?

Tom99 · 20 May 2019 at 10:16AM

castle96 wrote: »

thank you both. Certainly seems that solicitor has got it wrong !

Tom99
" If the house was to be sold by the estate for £350k against a £325k agreed value for IHT then the estate would have made a gain of £25k some of which might have been subject to CGT."

but even YOU mention mention CGT to the ESTATE. The house would belong to my sister, not the estate so …. ????

Sister...….. £House (£325) + 1/2 x £900 minus £650 then div by 2 (= £125) so £325 + £125 = £450

Me - Agreed house value £325 +£125 (same calc as above) = £450k

Sister wants to give me an extra £25 ffrom her cash/half, so £475 to me.

Still don't see why CGT even mentioned, whether on Estate or sister. House is not being sold anyway

I only mention CGT to give you the example of when the estate could have a CGT liability. That would only occur if the estate sold the house which as you say is not happening.
As I said above your solicitor is wrong to mention CGT since in your circumstances it does not apply.
Your post mentions valuing the house at £350k not £325k which means your sister is gifting you £12.5k and you will get £462.5k not £475k
If your sister wants to give you £25k of her inheritance you will need to make sure that is exactly what the DOV says. I would go with your solicitors advice, don't mess about with a different house valuation just deal with it under a DOV.

getmore4less · 20 May 2019 at 11:16AM

IF all that is happening is your sister is giving you £25k then she needs to decide if she wants a DOV for that cash or not bother.

there is no CGT and even if the place was sold for more than the probate value, she has the beneficial interest and living there so it would get full PRR.

Depending on her circumstances re. family and age and wellness it may be that a DOV is unlikely to be needed and she can still do it later within 2 years of DOD.

getmore4less · 20 May 2019 at 12:38PM

The confusion may have been caused if there was a suggestion the property is worth more than the probate value and this is an adjustment for that.

GCT - why? mentioned/liable

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