CGT after probate

CGT after probate

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How is one off CGT (on sale of deceased relatives house, for a value higher than probate) assessable? Is it just by tax return in the usual way?

In this case, a deed of variation is being done, to pass the house not to the two children (as per the will) but to the spouses and grandchildren as well. Would all 8 beneficiaries need to complete a tax return for 0607 in this case?

I assume the deed of variation needs doing before the house is sold?

Many thanks
Jenni Frost

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By User deleted
22nd May 2006 08:41

Good morning Jenni
Sorry to hear of your own bereavement-I hope it will be the last for a long time.

You may be under a misapprehension about how probate valuation works. The value of the property applicable for IHT will be its market value at the date of death, without any deduction for the costs of sale.

If the market value of the land is greater than the value of the house that stands on it, then the higher , development, value will be the one which will apply for IHT.

David's comment about increases in value betwwen death and sale is valid- and development values are notoriously volatile.

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By AnonymousUser
21st May 2006 21:57

CGT after probate
Thanks again for responses. yes I meant IHT threshold not CGT!!!!

The IR are "enquiring" into the value of probate, as it happens. Might be worth seeing the outcome of that before selling??

The reason, I think, that the sale value will be more, is that the house would need a lot of work. So the value of the land for development is worth more than the house is, in its present condition. It's going to be sold for land.

I think this is enough info for me to be getting on with, thank you so much for your help.

No need to apologise, David, but thank you, and yes I am involved personally here.

Ah well, another weekend over! Have a good week guys and gals

Jenni

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David Winch
By David Winch
21st May 2006 15:38

Take care!

Jenni

You need to think carefully about this.

Is there any Inheritance Tax payable on the estate? If not, could the probate value of the house for IHT purposes be increased to the sale price without incurring IHT?

Alternatively, the 'normal' situation is that the property is sold by the estate of the deceased (which is a taxable 'person' in its own right). The gain is then entered on a Trust & Estate Tax Return. There is (normally) one annual CGT exemption available - unless there has been a considerable delay between death and the sale (in which case the whole gain may be taxable). In this case the estate pays the CGT and the beneficiaries do not have any capital gain to enter on their personal tax returns.

A better alternative, depending on the figures, may be for the property to be formally assigned to the 8 beneficiaries before the sale is agreed, so that the 8 beneficiaries then formally become the beneficial owners of the property. Then the sale is made by the 8 beneficiaries (not the estate of the deceased). In this event each beneficiary makes a gain of one-eighth of the total gain, which has to be entered on their own tax return (if it exceeds the de minimis threshhold for making a return, or if they make a return anyway). Each beneficiary then may have an annual CGT exemption to set against their gain (depending upon what other gains they have in the year). In this case the estate itself has no capital gain and no CGT to pay.

So the formal assignment may enable 8 annual CGT exemptions to be used rather than one (or none). Obviously this may be beneficial and the tax saving may outweigh the extra legal costs of doing the assignment (which needs to be done by a solicitor or licensed conveyancer).

If a solicitor is assisting in the administration of the estate then they should be specifically instructed (in writing!) to consider the tax benefits of an assignment and advise the executors / beneficiaries.

In some cases solicitors do not address their minds to this potential tax saving and so fail to assign when it would be beneficial. (In many cases probate work is undertaken by unqualified staff who may not be aware of the tax implications.)

An accountant or solicitor who is a member of STEP (Society of Trust and Estate Practitioners) would be able to give further advice.

David

P.S. Some legal points: I assume we are referring to an estate dealt with under the law of England and Wales (things may be slightly different in Scotland). Also you need to look at the powers the executors have under the Will to check the property can be assigned to the beneficiaries before the administration of the estate is finalised (especially in Scotland, I understand). Finally, my terminology may be incorrect - a solicitor may refer to an assent of title rather than an assignment.

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By User deleted
21st May 2006 16:00

A few additional points only
Selling costs will be allowable for CGT, but will not affect the value taken for IHT.
If the PR's are going to sell, they will be entitled to any unused CGT losses of the deceased as well as a notional personal CGT exemption for the first two tax years following death.

If the sale is to be by the PR's, there is no reason why the DOV can't be after the sale.

If, on the other hand, the idea is that the CG should be spread amongst the wider class of heirs, then the DOV must precede the sale, which must be by the heirs.

You may need to consider the position from a non tax perspective if any of the grandchildren is a minor.

If the heirs are the vendors , they will each have to file an SA tax return if and only if they either receive one, or individually have a tax liability as a consequence of the sale.

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By AnonymousUser
21st May 2006 17:22

CGT after probate
Thank you for the replies. I think I follow.

The estate was just below the CGT threshold.
The death was late December 2005, and the sale will be in the next few months (we hope).
The executors of the will are the 2 (adult) children, and they want to minimise the tax implications, by sharing the estate amongst their children.

From what David said, then the Deed of Variation is a good idea, as I expect the sale price to far exceed the probate value.
This is why multiple CGT annual exemptions are being sought after!

In summary, please confirm that if we go ahead with the Deed of Variation then I will need to do a tax return for each beneficiary?

(the reason I am acting in this case even though its a new area for me is that it's family and they are happy for me to handle it, unless it gets disgustingly complicated! At this point it sounds like the complicated bits are the legal ones not the accountancy ones)

Also, what are the "non tax implications" of the minors? 2 grandchildren are minors.

Thank you :)

Jenni

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By User deleted
21st May 2006 17:47

IHT + the 'grandchildren' points

1] I assume that the estate was just below the IHT , not the CGT , threshhold? The CTO may well query the probate valuation if the property is sold shortly after probate for significantly more than the figure originally submitted-particularly if the figure has not been formally agreed previously by the District Valuer. If that happens all the CGT planning will be ineffectual

2] You need to obtain clarification as to the right to sell on behalf of minors. Usually parents have that right, but the question should be confirmed by the lawyers. Are the children content that the money will belong to their own children[the grandchildren]?

3] So long as the grandchildren are minors, any resultant income deriving from the investment of the proceeds attributable to their share will be treated as that of their parents- who are treated by virtue of the DOV as being 'settlors' on their minor children.

This is not the CGT rule, but....if the Revenue can argue that the money attributable to the children is factually applied for the benefit of the parents, there is an argument that the CGT is attributable to the parents [the children in your example] as settlors , not their own children[the grandchildren in your example] by virtue of TCGA s.77.

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David Winch
By David Winch
21st May 2006 19:33

Just to clarify

Jenni

Just to clarify, the Deed of Variation alone will not bring into play the 8 annual CGT exemptions. What is needed is a (1) Deed of Variation and (2) a formal assignment / assent of title and (3) sale of the property (in that order).

Even then, as SoG points out below, the tax benefits are not guaranteed.

In respect of the minor children it may be appropriate to invest their shares of the proceeds in accounts (or other investments) in their names rather than have the parents splurge out on new cars or similar!

If the DoV and assignment / assent are done then, YES, other things being equal, all 8 will have to declare gains on 2006/07 tax returns (including the minors).

Even if the District Valuer does seek to uplift the probate value you may be able to argue / agree that some increase in value occurred between death and sale. Of course, it depends on the figures (which you will not know until afterwards) whether the post-death increase exceeds one annual CGT exemption. If it does not, then all this planning is pointless and the extra legal costs will be a waste of money.

Good luck - I hope you are one of the eight! (but perhaps that also means that you have lost a close relative - in which case apologies for my foot in mouth).

David

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By AnonymousUser
22nd May 2006 17:07

CGT after probate
Thanks SoG

Thanks for that info, yes, I readily admit I haven't got much clue about how all this malarkey works!

I think we really need to see what the IR say in the enquiry, in this case. Seems prudent.

Thanks
Jenni

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