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Capital Gains Tax on property

My uncle has recently passed away.  He didn't make an official will, but does have a 'wish list'.

All of his assets automatically get past to my Nan, who is currently claiming benefits.

His wish list has requested that his house is sold and the proceed split between his 4 brothers and 1 sister.

My question is - would any capital gains tax be payable by my Nan on the sale of my Uncles house? Assuming that the sale is at market value?

Also, does anyone know if my Nan would loose her benefits by selling the house and gifting the proceeds to her grown up children?

It is my Uncles wish that the house is sold, but we don't want my Nan to loose out by selling the property and giving away the proceeds.

Any help would be very much appreciated

Thanks

Nikki

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26th Apr 2012 22:03

I would suggest . . .

I would suggest you see a solicitor experienced in dealing with probate matters who can advise you and your family.  A lawyer who is a member of STEP might be the best bet.

There will be no Capital Gains Tax to pay on your uncle's house (but it should be valued at current market value for probate purposes).

For CGT purposes he is treated as if he 'sold' his house at its open market value on the day of his death and it was then 'bought' at that price by his executors / administrators / personal representatives (in this case your Nan will act as his administrator).  So then the administrator will not make any gain on the later sale of the property and so will not have a liability for CGT.  (Your uncle will also not have a liability for CGT on the 'sale' on his death.)

A separate question is whether any Inheritance Tax liabilities arise on your uncle's death.  That depends (largely) upon the total value of his estate (including the market value of his house, and anything else he owned, at the time of his death).  Normally there is no Inheritance Tax on estates valued in total at less than £325,000.

It might be possible to take steps to legitimately avoid any adverse consequences for your Nan (whom I assume to be your uncle's mother).  Again talk to the solicitor about this. (This is perhaps the area in which you most need some professional assistance.)

David

N.B. This brief reply is somewhat simplified for the sake of clarity - but do get some (paid) professional help!

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By Nikkie
26th Apr 2012 22:05

Thank you...

Thank you for your response.

The solicitors my Auntie is using to try to sort all this out don't appear to be very knowledgable, they have said that if the house (worth between £70k-£80k) is sold and proceeds divided as above, my nan will have to pay Capital Gains Tax, which I didn't think was correct, as it would be sold at market value.

They have also said that, if she is to sell the house, she wouldn't be entitled to any benefits even if she gives the money away as requested by my Uncle.  This I can't find anything about, and I just don't know anything about claiming benefits myself. I would have thought that, just owning the property, without selling it, would mean that she would loose her benefits.

I think I may need to go and see a seperate solicitor

Thanks for your help

Nikkie

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27th Apr 2012 08:25

Benefits

There is a potential problem with your Nan's benefits if the house goes to her following your uncle's death and she then makes gifts.  This relates to her 'depriving' herself of property (by making the gifts).

However it MIGHT (I stress MIGHT) be possible for the house to pass direct from your uncle to his brothers and sister.  If that could be done then it might be that your Nan would not be treated as 'depriving' herself of anything.

Also it may be said that your Nan is not depriving herself of anything - all she is doing is carrying out your uncle's wishes regarding the division of his estate after his death.

This is complicated a bit because your uncle apparently did not leave a valid will.  That's where you need a good lawyer.

By the way STEP stands for the Society of Tax and Estate Practitioners who have a website HERE.

( I assume your uncle lived in England / Wales and the house is here also.)

David

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By LyneT
27th Apr 2012 12:22

As David has said your Grandmother will acquire the house at market value at the date of death.  The only CGT will be from date of death to date of sale.

In terms of the benefit position, if your Grandmother gives away her assets whilst she is claiming means tested benefits, this will undoubtedly be a deprivation of assets.  The only way around this would be if your uncle had left a will and left it to Grandma but on secret trust.  Secret trusts are used in the sorts of situations where the testator wishes his property to pass to another person but does not want this information publicly available.

A half secret trust is where the will suggests there is a secret trust  ie.  I leave the house to X who I have made known my wishes.  It is obvious that this is a trust.

A fully secret trust is where the will says I leave my house to X.  However, before his death, the testator will have made his wishes known.

For the DWP to accept that any sort of secret trust exists you would have to demonstrate some sort of proof.  Eg is there any correspondence, Why would you need to do it secretly? etc

This is a case of intestacy and I cannot see how the DWP would accept that the deceased had the sophistication to be aware and to set up a secret trust and not have the sophistication to write a will.

There may be something which we are not aware of which is not obvious from the question, so you could see a STEP solicitor but I cannot see a way around the deprivation of assets position.

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By Nikkie
27th Apr 2012 12:38

Not making a Will

Thanks for all your comments,

Just for clarity, and just in case it might help at all.  The reason my Uncle didn't make a will was because he had Lung Cancer, initially it was estimated that he had 6 - 12 months, but he deteriorated very quickly and passed away within 6 weeks of being diagnosed.  He was in too much pain to go to a solicitors and instead told my Auntie what he wanted doing with his possessions.  Unfortunately, I don't think that my Auntie's 'little black book' with his wishes in counts as a will, hence the problems now.

Does anyone know, if my Nan keeps the house, and doesn't sell it or rent it out (she has her own house) would that affect her benefits too?

Thanks

Nikki

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27th Apr 2012 12:52

Wish list

LyneT

The original poster does however refer to a 'wish list' indicating that the proceeds are to be split between the deceased's 4 brothers and 1 sister.

The house presumably passes to the deceased's mother under the rules of intestacy - but could the 'wish list' be accepted for benefits purposes as having the effect of a will?

(Edit: I have just seen the OP's further posting - apparently the 'wish list' was written by the sister of the deceased on his instruction.  Interesting!  It would have been better if he had asked a solicitor to visit him to make a will - or even signed the 'wish list' written by his sister and had that signature witnessed by a couple of nurses.  But it is easy to be wise after the event!)

Also I am wondering if the deceased had substantial other assets and the house had been under-valued for probate purposes as an improper means of avoiding Inheritance Tax?  In that event there would be an apparent post-death capital gain on a subsequent sale at market value (hence the solicitor's advice that CGT would be payable on a sale at market value?).

David

P.S. Nan retaining the house without renting it out would increase her capital and probably her 'deemed' income and that would likely be a disaster for benefits purposes.

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By LyneT
27th Apr 2012 15:14

David, I think it unlikely that the "wish list" would form any sort of valid secret trust.  I think the DWP would ask even why did he not do a home made will.  Even better if they got the solicitor to visit.  But as you say, it is easy to be wise after the event if you haven't experience with this.

That said, if this were my client, I would be advising to give it an outing.  All the DWP can say is "no".  However, it would not be advising not to at least run it past them.

In terms of what would happen if the house was not sold and not rented out, it would be treated as notional capital.  There is a scale somewhere which says if your notional capital is X, then your income is Y.

 

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