CGT interaction with IHT and deed of variation

Sale of property subsequent to probate with part proceeds used to pay out deed of variation

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A client inherited a 1/3 share in a residential property when her mother died. Her share was valued at £150000 at the date of probate in January 2015. She subsequently entered into a deed of variation (to the original mother's will) to 'give' £80000 of the mother's estate to her children. In June 16 she sold her share of the property to her sister (at an agreed market value) for £183000 and used part of the proceeds to pay the £80000 to her children. She has been 'advised' that the £80000 can reduce her Capital Gain which I calculated as £33000. I had told her that the taxable gain would be £21900 (after PA). She would clearly prefer to offset the £80000 against the gain (wouldn;t we all in that situation) so I'd really appreciate any constructive comments either confirming that my calcualtion is correct or telling me that I am a complete numpty and can somehow use the £80000 to her advantage. Thanks in advance for anything; it's at times like this I find being a sole practitioner challenging :-)

Replies (5)

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By Tax Dragon
23rd May 2017 15:13

On the facts as presented, the £80,000 is nothing to do with the property and the gain thereon is £33,000.

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By Cathy R
23rd May 2017 15:26

I believe that if the DOV reduced the client's share of her inheritance in the property, then the £80k can reduce her cgt liability. It will probably come down to how the deed was worded, and what her entire inheritance was.

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Replying to Cathy R:
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By Tax Dragon
24th May 2017 16:01

Agreed - though of course if the DoV reduced the client's share of her inheritance in the property, then what she owes her children is more than £80k.

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By alan.rolfe
23rd May 2017 16:14

The legal treatment of the transactions will be critical.

The deed of variation may have created a financial "IOU" or it may have been legally evidenced as change in the ownership of the property to give an £80k part ownership share to her children.

You need to check the legal paperwork, as without that evidence the £80k would not appear to be allowable against the gain.

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By kiwilondon99
24th May 2017 09:18

the children may still own 80/150 of the property if DoV adjusted the inheritance onwership..

sister selling to 'sibling sis' for 183 on ownership of 70 ?

check Dov carefully !!! as kids may also either have a cgt liability depending on sale or part own Aunts house [ + aunt oblivious ??? ]

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