Inheritance Tax & CGT

[Philip Herlihy]

I hope folk don't mind me asking a "domestic" tax question - I can't find a
more suitable forum! This is a "round-numbers" hypothetical version of an
issue which affects someone I know.

Say this person inherits a house valued at 1,000,000. The IHT zero-rated
band is 325,000, so 675,000 is liable at 40%, giving a tax liability of
270,000. So they turn out their pockets, pay HMRC the 270,000 (deep
pockets!) and keep the house.

Some time later, they sell the house, and see a gain - say they sell it for
1,500,000. Obviously, there's a liability to Capital Gains Tax, but can she
argue that the value at acquisition was the original 1,000,000 plus the
270,000 IHT paid?

I think I can guess the answer to this question, but it would be good to
have an opinion from someone who knows about these things!

Phil, London

"Nothing is certain but Death and Taxes". (I prefer taxes...)

 

[Ronald Raygun]

Some time later, they sell the house, and see a gain - say they sell it
for 1,500,000. Obviously, there's a liability to Capital Gains Tax, but
can she argue that the value at acquisition was the original 1,000,000
plus the 270,000 IHT paid?

No, you need to replace "plus" with "minus". It's obvious when you think
about it: she had to put up 270k of her own money in order to get the
benefit of an inheritance notionally worth a million, and therefore the true
value of the inheritance was really only 730k. This means the taxable gain
upon sale would be 770k.

Bad luck!
















Only kidding. The taxable gain would be 500k, not 230k.

 

[Martin]

No, you need to replace "plus" with "minus". It's obvious when you think
about it: she had to put up 270k of her own money in order to get the
benefit of an inheritance notionally worth a million, and therefore the
true
value of the inheritance was really only 730k. This means the taxable
gain
upon sale would be 770k.

Bad luck!




Only kidding. The taxable gain would be 500k, not 230k.

Good one

Alternatively, could she not stand successfully at a by-election and hence
avoid CGT altogether...?

And I'm not kidding. Much.

 

[Philip Herlihy]

Good one

Alternatively, could she not stand successfully at a by-election and hence
avoid CGT altogether...?

And I'm not kidding. Much.

I was glad to read Ronald's "only kidding" bit! I think Martin's comment
refers more to nominating the house as Principal Private Residence - we just
found out about this in time, as the two year nomination deadline is about
10 days off!

Thanks to both.

Phil

 

[Ronald Raygun]

I was glad to read Ronald's "only kidding" bit! I think Martin's comment
refers more to nominating the house as Principal Private Residence - we
just found out about this in time, as the two year nomination deadline is
about 10 days off!

Well, it's obviously a good idea to get that nomination sorted PDQ, but
is it not the case that missing the deadline is no big deal?

You can always restart the two year clock by making a change to the
combination of potential residences.

For example, if your friend has not yet actually used the other property
as a second residence since inheriting it, then once she does so, a new
two year deadline period begins.

www.hmrc.gov.uk/manuals/cg4manual/cg64495.htm

 

[Philip Herlihy]

Well, it's obviously a good idea to get that nomination sorted PDQ, but
is it not the case that missing the deadline is no big deal?

You can always restart the two year clock by making a change to the
combination of potential residences.

For example, if your friend has not yet actually used the other property
as a second residence since inheriting it, then once she does so, a new
two year deadline period begins.

www.hmrc.gov.uk/manuals/cg4manual/cg64495.htm

I'd found that myself! (Despite contrary advice from people who should know
better). Happily, she started using the house just under two years ago.

Phil