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HMRC chasing deceased estate for CGT

HMRC chasing deceased estate for CGT

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Question asked by my client for family member......my clients sister's had long term partner (never married) who rented his residential property out. They moved in together living in the sisters house. Her partner declared the rental income on his tax return paying any necessary tax each year. The rental property was sold and the proceeds were gifted to the sister to pay off the mortgage on her property . The partner is not on deeds of the sisters property and had no other assets and gift was well below the IHT  Sadly the partner took ill and passed away a year after the sale. HMRC have now written to the sisters address for attention of the executors/legal representatives asking for payment of CGT that they have calculated on the sale of the old house. 

The question would be what happens in this instance when the deceased has passed gifted the proceeds to another party and has no other assets to pay the CGT bill. I dont want to spend unncessary time and expense reviewing the CGT aspect if HMRC has no legal authority in pursuing the sister for the CGT.

Thanks

 

 

Replies (8)

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By johngroganjga
18th Oct 2017 11:11

I am no expert in the affairs of insolvent estates of deceased persons, but it would be only logical and fair for unpaid creditors of such estates to be able to have recourse to the assets of recipients of lifetime gifts by the deceased shortly before death. If that is the basis of HMRC’s approach I would expect them to be setting out chapter and verse.

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Replying to johngroganjga:
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By Avant-Garde54
18th Oct 2017 11:41

Thanks for comment and I agree that it is unlikely HMRC will just walk away without investigating where the proceeds have gone. I have asked my client to see if her sister can get as much paperwork together as possible relating to purchase and sale and hopefully with the various reliefs available the gain can be reduced significantly.

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Replying to Avant-Garde54:
By johngroganjga
18th Oct 2017 11:46

Quantifying the gain, and the tax due thereon, is a matter for the deceased's executors, and has presumably already been done. Your client's sister won't be able to get involved.

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By ireallyshouldknowthisbut
18th Oct 2017 11:40

I am pretty sure in general contract law there are rules in place to prevent someone dying giving away all their assets before they die to avoid creditors.

Then again I got a third in my law paper at uni.

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By cathygrimmer
18th Oct 2017 11:56

I'm no expert but I believe a deceased person can be made bankrupt if the debts outweigh the assets at death and then the trustee in bankruptcy may be able to claw back lifetime gifts. But your client's sister really needs to consult a lawyer to establish her potential liability. Whether HMRC would consider taking that route will, I imagine, depend on how much tax is at stake.

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By Chris Smail
18th Oct 2017 12:00

Who are the executors/legal representatives

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By Avant-Garde54
18th Oct 2017 12:14

Thats for all the responses. I dont have much information other than what my client has told me as she was concerned that her sister was ignoring the letters from HMRC. I will tell my client that she should inform her sister that this needs to be dealt with ASAP and that HMRC wont just go away and she should speak to the legal representatives and hopefully she will do so before HMRC gets more aggressive.

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By Chris Smail
18th Oct 2017 13:09

She should at least pass the correspondence on to the executors/legal representatives. If she wants HMRC to deal directly with them she should inform HMRC who they are.

If she did it all herself then now would be a good time to get paid professional advice (or just pay the CGT)

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