Spouse capital gains tax after death

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I'm looking at the inheritance tax part of my studies and trying to understand how it works with capital gains tax. It's not the sort of thing I expect to see in my exam, but it's a scenario I thought of and couldn't get straight in my mind.

1) Married couple own a house jointly, purchased for £50k

2) Husband dies, leaving everything to his wife, house is valued at £250k

3) Wife stays in the house for a few years, but then moves out (into care or similar) and but keeps the house

4) After a few more years the wife sells the house for £350k

As I understand it the value of the house at the husband's death would be transferred to his wife, with no inheritance tax payable as they're spouses. What I'm unsure of is the gain that is used for the CGT calculation when she sells it, as in my mind there seem to be 3 states which could be similarly valid.

1) Sale price (£350k) - original purchase price (£50k) + PRR relief for the time she lived there during the lifetime of ownership

2) Sale price (350k) - value at husband's death (£250k) + PRR relief for the time she lived there, but calculated only on the time that she owned the property after his death

3) An amalgamation of the two. So half being made up of the value from point (1) and half from point (2), to account for the fact that she's owned her half since it was originally purchased and his half for the time after he died.

Apologies if it doesn't make sense, I know what I'm trying to ask but I'm not sure if I'm translating that correctly into a post!

Replies (4)

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By Paul Crowley
10th Jul 2024 11:12

Just look at the wife
What did she buy, what was passed to her later.
Sounds like 3. Then do the PPR

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Replying to Paul Crowley:
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By AATStudent1984
14th Jul 2024 21:07

Paul Crowley wrote:

Just look at the wife
What did she buy, what was passed to her later.
Sounds like 3. Then do the PPR

So effectively you'd have to work out two separate gains? So in my example:

Her original half = £350k / 2 - £50k / 2 = £150k
Her inherited half =£350k / 2 - £250k / 2 = £50k
Total gain = £200k?

Odd as it sounds I'm quite enjoying this part of the course, I find this sort of thing fascinating. Suspect that starts to go away the more you do it for living!

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By cathygrimmer
10th Jul 2024 14:40

As Paul says - it's 3.

There's still 36 months final period PPR if the wife is a long term resident in a care home.

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Replying to cathygrimmer:
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By AATStudent1984
14th Jul 2024 21:10

That's interesting, we'd only covered the 9 months at the end and periods where you have to work elsewhere, thanks for the information.

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