Capital Gains Tax

[Ames]

Hi all,

I've just been told on another forum that I'll have to pay capital gains tax on my share of mum's house when we sell it. I've had a look at the government website but can't really get my head around it.

The house is worth between £140k and £170k, with a mortgage and other debts of about 30k to come out of the estate.

If I can get permission from the benefits agency I want to buy a house of my own. It'd have to be outright as I wouldn't get/couldn't afford a mortgage.

Is it really true that I'd have to pay £18% tax on my share? It's the first I'd heard of it, and if true means I wont be able to buy a property anyway.

The whole thing with the estate is doing my head in, my benefits will stop when probate comes through but my sister refuses to sell until Spring.

My financial world is being turned upside down and completely destabilised and I just don't know where I am with anything anymore.

[Never-In-Doubt]

Re: Capital Gains Tax

Ouch - sometimes they say a windfall as such like an inheritance etc can be more hassle than it's worth.... I can't help with the original query, but am sure someone will be along shortly to help, Rizzle may be a good bet to PM? he is a wealth of info when he wants to be...

[Ames]

Re: Capital Gains Tax

Thanks Niddy, it really is more hassle than it's worth.

My benefits will stop as soon as probate is granted, unless we put the house on the market straight away. Sister wont put the house on the market till spring. It's going to be a very lean winter for me.

I just wish I could wash my hands of the whole thing!

[pompeyfaith]

Re: Capital Gains Tax

Being given a home

Your parents may want you eventually to have their home. If they leave their home to you in their wills, you inherit the property at its market value at the time of death. There is no capital gains tax payable on death, but the value will be included in the estate, and inheritance tax may be payable instead.
If you sell the property without having made it your own home, there could be CGT to pay, and this will be based on the increase in value between the date of death and the date when you sell.
Your parents might give you the home during their lifetime but carry on living there. For inheritance tax purposes, this counts as a gift with reservation so the home will still count as part of your parents’ estates when they die.
You may have to pay CGT when you eventually sell the home, and this will be based on the increase in value between the date they gave you the property and the date you sell. This is the case even though there may be inheritance tax to pay on the home at the time of your parents’ deaths.
Home example

For example, you inherit your father’s home when he dies in May 2008.

• At the date of death, it is worth £200,000.
• You sell it six months later for £205,000 and can deduct selling costs of £3,000.
• You have made a gain of £205,000 - £200,000 - £3,000 = £2,000 which falls comfortably within your annual allowance, so no CGT is due.

Imagine instead your father gave you the home 10 years earlier while he was still alive and continuing to live there.

• At the date of the gift, the home was worth £140,000.
• Again you sell six months after his death. In this case, you have made a gain of £205,000 - £140,000 - £3,000 = £62,000.
• After deducting your annual allowance of £9,600, you have a taxable gain of £52,400 and a tax bill of 18% x £52,400 = £9,432.
• In addition, the value at the date of your father’s death (£200,000) will be included in his estate for inheritance tax purposes, rather than the value at the date he gave it to you (£140,000).

http://www.which.co.uk/money/tax/gui...-and-property/

Regards

[Never-In-Doubt]

Re: Capital Gains Tax

Rizzle may be a good bet to PM? he is a wealth of info when he wants to be...

Or ask Pompey

Thanks mate - good info

[caspar]

Re: Capital Gains Tax

Seems to explain it in a fairly straightforward way (taken from HMRC Website):


Death, inheritance and Capital Gains Tax

What happens when someone dies

When someone dies, the assets they own pass to the person looking after the estate - known as the ‘executor' or ‘personal representative’. There's no Capital Gains Tax to pay at that time, even though the assets have changed hands.
What the executors or personal representatives do

The executors or personal representatives are responsible for dealing with any Capital Gains Tax due to the date of death on assets that the deceased sold or disposed of before they died.
After they’ve dealt with all the tax and financial matters of the estate, the personal representatives pass the remaining assets to the people who inherit them - the ‘beneficiaries’. There's no Capital Gains Tax even though the assets have changed hands.
If the personal representatives sell or dispose of the assets and pass on the money (or 'proceeds') instead, they'll need to work out the gain or loss on the disposal of the assets.
If you're acting as a personal representative for the estate of someone who's died, you may find the links below useful.
Find out about tax returns for personal representatives
Download the latest Capital Gains Tax helpsheet for personal representatives - Helpsheet 282 (PDF 95K)
Tax at the time you inherit

When you inherit an asset from someone who's died, there's no Capital Gains Tax to pay at that time.
There won't be any Inheritance Tax due either if the whole of their estate is worth less than the Inheritance Tax threshold (£325,000 in 2010-11 and 2011-12).
If the estate is worth more than the Inheritance Tax threshold and you’re entitled to receive a share of the estate, the personal representatives will usually pay any Inheritance Tax due from the estate’s assets before you receive your share.
Selling or disposing of assets you've inherited

When you sell or dispose of an inherited asset, you may be liable to Capital Gains Tax on any profit or gain you make.
You'll need to get a valuation of the asset at the date of death and use this value as the 'cost' of your asset to work out your gain or loss. If the value has been agreed for Inheritance Tax purposes you should use the same valuation.
Find out more about Inheritance Tax
How to work out your Capital Gains Tax

[pompeyfaith]

Re: Capital Gains Tax

CGT Calculator

http://www.which.co.uk/money/tax/gui...ax-calculator/

[Never-In-Doubt]

Re: Capital Gains Tax

Fancy starting a new thread with all this info then i'll move it and sticky it etc....

Only if you fancy it like....

[Ames]

Re: Capital Gains Tax

Thanks guys, it seems CGT is payable on any increase between the probate value and what it sells for, not the increase between what I have now (zero) and what I'd have when it sells (a lot).

Phew.

Niddy, I agree about this info being a sticky.

[caspar]

Re: Capital Gains Tax

Fancy starting a new thread with all this info then i'll move it and sticky it etc....

Only if you fancy it like....

If this were to become a thread in itself, it would seem to me to make sense to have a section on Wills, Probate, POA's and CGT all in one section.

Go for it Pompey - you know you'd like to!

[Tuttsi]

Re: Capital Gains Tax

Please clarify if you are reffering to you being responsible for paying capital gains tax on the disposal of the property sitting in the estate.

If the estate is liable for inheritance tax then you and your sister will receive the proceeds net of any taxes. There are no capital gains tax liability on death but possibly capital taxes by way of inheritance tax if the estate is valued in excess of the current threshold of £325K. Therefore 18% would not apply.

If this is purely an inheritance tax situation involving an estate with net assets in excess of £325k then there would be inheritance tax payable at the rate of 40% by the estate.

If you are receiving the proceeds from the estate then this would be after tax.

Hi all,

I've just been told on another forum that I'll have to pay capital gains tax on my share of mum's house when we sell it. I've had a look at the government website but can't really get my head around it.

The house is worth between £140k and £170k, with a mortgage and other debts of about 30k to come out of the estate.

If I can get permission from the benefits agency I want to buy a house of my own. It'd have to be outright as I wouldn't get/couldn't afford a mortgage.

Is it really true that I'd have to pay £18% tax on my share? It's the first I'd heard of it, and if true means I wont be able to buy a property anyway.

The whole thing with the estate is doing my head in, my benefits will stop when probate comes through but my sister refuses to sell until Spring.

My financial world is being turned upside down and completely destabilised and I just don't know where I am with anything anymore.

[Ames]

Re: Capital Gains Tax

Please clarify if you are reffering to you being responsible for paying capital gains tax on the disposal of the property sitting in the estate. No, I meant if I was liable for CGT on my share of the estate.

If the estate is liable for inheritance tax It's not. then you and your sister will receive the proceeds net of any taxes. There are no capital gains tax liability on death but possibly capital taxes by way of inheritance tax if the estate is valued in excess of the current threshold of £325K. Therefore 18% would not apply.

If this is purely an inheritance tax situation involving an estate with net assets in excess of £325k then there would be inheritance tax payable at the rate of 40% by the estate.

If you are receiving the proceeds from the estate then this would be after tax.

The value is well below half of the IHT threshold. I was told that when we sold the house we'd be liable for CGT, which we wouldn't be unless it sells for more than the probate value.

[Tuttsi]

Re: Capital Gains Tax

Once the probate is official the property can then be transferred into your names and the base cost of the property is the probate value. If the selling price is close to the probate value, then there could be very little CGT. The present reliefs for CGT is the annual exemption of £10,600. So the gain would have to exceed this amount for CGT to kick in and yes the CGT rate is 18%.

The value is well below half of the IHT threshold. I was told that when we sold the house we'd be liable for CGT, which we wouldn't be unless it sells for more than the probate value.

[Ames]

Re: Capital Gains Tax

Is the exemption for the property or the person? So, is it £10600 between me and my sister, or do we get that allowance each, meaning the house can sell for about 20k more than the probate value?

Not that it's likely to be an issue.

[Tuttsi]

Re: Capital Gains Tax

It is an annual individual excemption each as long as the property transaction is in joint names. That is for probate and eventual disposal. If this is the criteria then £10,600 each,

Is the exemption for the property or the person? So, is it £10600 between me and my sister, or do we get that allowance each, meaning the house can sell for about 20k more than the probate value?

Not that it's likely to be an issue.