Capital Gains tax base cost of inherited property

Capital Gains tax base cost of inherited property

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Scenario:

  • property owned jointly by husband and wife
  • wife dies and leaves her 50% share to her adult child
  • husband dies shortly afterwards leaving the remaining 50% share to the same child
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The guidance to IHT205 suggests that 50% of the value should be used on the form for the wife's estate.  In the case of the husband it suggests that 50% of the value should be taken less a 10% discount (ie:45%) - although speaking to HMRC this seems to be what is normally expected but it is optional.

The estate is too small to attract inheritance tax.   Do the values included on the IHT205 form have a bearing on the CGT base cost assumed by the beneficiaries?

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By Vaughan Blake
11th Apr 2011 18:04

Use Market Value

That's correct the "probate" value is the base cost for CGT for the beneficiary.

The probate value should be market value (willing buyer & seller etc etc).

Naturally market value where there isn't a willing buyer or seller is rather hypothetical and creates a range of values.  It is therefore in order to chose the highest value quoted by a suitably qualified valuer.  However, to ignore the 10% discount for joint ownership effectively over values the property under the normal rules and could be open to question.

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By David_Lewis
13th Apr 2011 16:48

connected person?

Vaughan - thanks for your reply.   Presumably the 10% discount doesn't apply when the property is owned 50/50 by husband and wife because they are connected and are likely to act in tandem as regards the property.

It may be a bit of a moot point, but an adult child is arguably not unconnected (in the real world) - or at least more connected than someone that isn't a close relative!  Is there a rigid approach or could it be argued that the 10% discount shouldn't be applied in this particular situation.

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