Capital Gains tax on Inheritance?

Discussion in 'UK Finance' started by parham1975@msn.com, Sep 19, 2006.

  1. Guest

    Hello there,
    I wonder if anyone can clarify this situation for me. I recently
    inherited 25% of a house from a relative. The estate is under the
    threshold for inheritance tax. However when the house is sold I will
    recieve ~£40,000 cash and I wonder if this is liable for CGT or is it
    exempt because it is an inheritance?

    Thanks for any help on this!
     
    , Sep 19, 2006
    #1
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  2. Miss L. Toe Guest

    Hello there,
    I wonder if anyone can clarify this situation for me. I recently
    inherited 25% of a house from a relative. The estate is under the
    threshold for inheritance tax. However when the house is sold I will
    recieve ~£40,000 cash and I wonder if this is liable for CGT or is it
    exempt because it is an inheritance?

    Thanks for any help on this!


    Did you:
    a) Inherit a 25% share from the estate with the house being put in joint
    names and then sold later. (which is what your post implies)
    or
    b) Is the house being sold whilst still in the estate and then you get your
    entitlement as a distribution afterwards. (which is more normal)
     
    Miss L. Toe, Sep 19, 2006
    #2
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  3. Guest

    Hi Miss L,
    It's option b - I inherited 25% of the house which as you say was sold
    as part of the estate and then once the estate is settled I will get my
    share.
     
    , Sep 19, 2006
    #3
  4. Miss L. Toe Guest

    Hi Miss L,
    It's option b - I inherited 25% of the house which as you say was sold
    as part of the estate and then once the estate is settled I will get my
    share.



    Then (it is my understanding) that CGT does not apply, and all taxes (IHT)
    will be settled by the executors before you get anything.

    (With the minor exception of taxable interest earned on the executors
    account).

    It would be safest to ask the executors if any tax will be due (as long as
    they arent going to charge you a fortune to tell you).
     
    Miss L. Toe, Sep 19, 2006
    #4
  5. Guest

    Thanks Miss, from reading posts in this group I was getting the
    impression that was the case but wanted to ask my specfic situation.
    CGT is rather a confusing one to my simple mind!

    Thanks for taking the time to respond!
     
    , Sep 19, 2006
    #5
  6. Had the answer been option (a) then CGT would not have applied either.

    The heir would be treated as having acquired the 25% share at its value
    at date of death. CGT would only apply in respect of gain from the time
    *he* (the heir, not the deceased) acquired it (i.e. from date of death)
    up until when he sold it. Assuming this to be only a short while, and
    assuming that the property's not a manor worth millions, there will be
    too little gain to breach the annual exemption, so unless he is realising
    significant other gains in the same year, he'll be safe.
     
    Ronald Raygun, Sep 19, 2006
    #6
  7. Miss L. Toe Guest

    Assumptions are dangerous :)
    especially when there are many of them.
    You just listed 3 situations where CGT would/could have applied :)
     
    Miss L. Toe, Sep 19, 2006
    #7
  8. Who pays the income tax on this interest? The estate or the heir?
    I believe it is the heir, but the executors (especially where they
    are money grubbing accountants or lawyers) my offer to deal with this
    aspect on behalf of the heirs (and charge a fortune for it). Where the
    heirs are basic rate taxpayers and the tax on the interest is retained
    at source by the banks, this doesn't actually involve any work (beyond
    establishing the fact that the heirs are indeed BRTPs), but they'll
    still charge a fortune for it.

    I reckon the same is true of CGT, so if one of the the 3 "dangerous
    assumption" situations applies, then I reckon option (b) will not
    avoid CGT liability, either. Where the money grubbing professional
    executors deal with CGT for and on behalf of the heirs, which is now
    less straightforward since they basically have to get involved in the
    heirs' tax affairs, and this will cost an enhanced fortune, then all tax
    due (including CGT) will already have been deducted from the dosh when
    the heirs finally receive it.
    I would think that it would be simpler if the executors did *not* deal
    with CGT for the heirs but were instead simply to distrubute the loot net
    of bank retained basic rate interest income tax and gross of CGT if
    potentially due. The heirs would be left to reclaim interest tax (or
    pay the higher-rate top-up) where applicable, and to make their own
    arrangements for paying the CGT if any.
     
    Ronald Raygun, Sep 19, 2006
    #8
  9. Tumbleweed Guest

    You are incorrect, the estate pays all taxes due (so thats for the executors
    to arrange), then the remaining money is distributed. (just doing this now)
     
    Tumbleweed, Sep 19, 2006
    #9
  10. Miss L. Toe Guest

    I am not an expert but I think you might be not 100% correct.

    My understanding is that the estate pays basic rate (in most cases) tax on
    the interest.

    This might be reclaimable by non-taxpaying residual beneficeries.
    Extra (to make it up to 40%) might be payable by higher tax rate paying
    residual beneficeries.

    Checkout the R185

    Note to the OP if you pay anything other than basic rate tax ask your
    executors for an R185 - the impact (if any) in pounds is likely to be very
    small.
     
    Miss L. Toe, Sep 20, 2006
    #10
  11. Tumbleweed Guest

    My bad, I read your first sentence, and entirely missed the key point in the
    second one in parethenses, about tax on interest being the point at issue.
    Sorry.
     
    Tumbleweed, Sep 20, 2006
    #11
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