Inheritance Tax or Capital Gains Tax (UK)?

Discussion in 'UK Finance' started by prof.plum@volcanomail.com, Nov 9, 2006.

  1. Guest

    My father, our last surviving parent, died about a year ago. The value
    of his estate was less than the threshold for inheritance tax.
    My brother and I are sole beneficiaries and I am the sole executor.
    We decided between us to spend some of the liquidated assets to improve
    the property, mainly to increase its desirability so that it wold be
    sold quickly.
    We have now sold the property and partly because of market increases
    and partly because of the improvements the value has increased by
    £40,000.
    We invested less than £10,000 and did a lot of the work ourselves.
    At this new value we have exceeded the inheritance tax threshold for
    2005, £275,000 by about £36,000.
    Is the estate now liable for inheritance tax or are we as individuals
    each liable for capital gains tax?

    I believe CGT. We inherited the property at the value on the day of my
    father's death and so any improvements we made are outside of the
    administration of the estate. My brother thinks I should declare
    inheritance tax and try and claim the property development costs as an
    executor's expense.
    Looking at the forms for inheritance tax I can't see quite how I can do
    this.


    Who is right?
     
    , Nov 9, 2006
    #1
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  2. > My father, our last surviving parent, died about a year ago. The value
    > of his estate was less than the threshold for inheritance tax.
    > My brother and I are sole beneficiaries and I am the sole executor.
    > We decided between us to spend some of the liquidated assets to
    > improve the property, mainly to increase its desirability so that it
    > wold be sold quickly.
    > We have now sold the property and partly because of market increases
    > and partly because of the improvements the value has increased by
    > £40,000.
    > We invested less than £10,000 and did a lot of the work ourselves.
    > At this new value we have exceeded the inheritance tax threshold for
    > 2005, £275,000 by about £36,000.
    > Is the estate now liable for inheritance tax or are we as individuals
    > each liable for capital gains tax?
    >
    > I believe CGT. We inherited the property at the value on the day of my
    > father's death and so any improvements we made are outside of the
    > administration of the estate. My brother thinks I should declare
    > inheritance tax and try and claim the property development costs as an
    > executor's expense.
    > Looking at the forms for inheritance tax I can't see quite how I can
    > do this.
    >
    >
    > Who is right?


    You are.

    Peter Crosland
     
    Peter Crosland, Nov 9, 2006
    #2
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  3. GB Guest

    "Peter Crosland" <> wrote in message
    news:4552d4e2$0$8721$...
    >>
    >> I believe CGT. We inherited the property at the value on the day of my
    >> father's death and so any improvements we made are outside of the
    >> administration of the estate. My brother thinks I should declare
    >> inheritance tax and try and claim the property development costs as an
    >> executor's expense.
    >> Looking at the forms for inheritance tax I can't see quite how I can
    >> do this.
    >>
    >>
    >> Who is right?

    >
    > You are.
    >


    I agree it's CGT. What is not quite so clear is whether it is the
    individuals' CGT or the estate's CGT. I think the latter. Any comments?
     
    GB, Nov 9, 2006
    #3
  4. GB Guest

    "GB" <> wrote in message
    news:4552eb51$0$18054$...
    >
    > "Peter Crosland" <> wrote in message
    > news:4552d4e2$0$8721$...
    >>>
    >>> I believe CGT. We inherited the property at the value on the day of my
    >>> father's death and so any improvements we made are outside of the
    >>> administration of the estate. My brother thinks I should declare
    >>> inheritance tax and try and claim the property development costs as an
    >>> executor's expense.
    >>> Looking at the forms for inheritance tax I can't see quite how I can
    >>> do this.
    >>>
    >>>
    >>> Who is right?

    >>
    >> You are.
    >>

    >
    > I agree it's CGT. What is not quite so clear is whether it is the
    > individuals' CGT or the estate's CGT. I think the latter. Any comments?
    >


    Sorry, I just need to qualify that. I am assuming that no attempt was made
    to move the property into the names of the ultimate beneficiaries. Also
    indicative would be who paid for the improvements.
     
    GB, Nov 9, 2006
    #4
  5. Roger Mills Guest

    In an earlier contribution to this discussion,
    <> wrote:

    > My father, our last surviving parent, died about a year ago. The value
    > of his estate was less than the threshold for inheritance tax.
    > My brother and I are sole beneficiaries and I am the sole executor.
    > We decided between us to spend some of the liquidated assets to
    > improve the property, mainly to increase its desirability so that it
    > wold be sold quickly.
    > We have now sold the property and partly because of market increases
    > and partly because of the improvements the value has increased by
    > £40,000.
    > We invested less than £10,000 and did a lot of the work ourselves.
    > At this new value we have exceeded the inheritance tax threshold for
    > 2005, £275,000 by about £36,000.
    > Is the estate now liable for inheritance tax or are we as individuals
    > each liable for capital gains tax?
    >
    > I believe CGT. We inherited the property at the value on the day of my
    > father's death and so any improvements we made are outside of the
    > administration of the estate. My brother thinks I should declare
    > inheritance tax and try and claim the property development costs as an
    > executor's expense.
    > Looking at the forms for inheritance tax I can't see quite how I can
    > do this.
    >
    >
    > Who is right?


    You are. IHT is based on the value of the estate at the time of death - i.e.
    *before* you improved the house.

    Have you got an independent valuation of the value at the time of death?

    Provided you haven't used your CGT allowances elsewhere, there should be
    little CGT to pay. The gain is around 30k - i.e. 15k each, and you each have
    an allowance of something approaching 9k (I forget the exact figure). You
    *may* even be able to spread the gain across 2 tax years in which case
    there'll be *nothing* to pay. [Not sure about this last point - others will
    advise].
    --
    Cheers,
    Roger
    ______
    Email address maintained for newsgroup use only, and not regularly
    monitored.. Messages sent to it may not be read for several weeks.
    PLEASE REPLY TO NEWSGROUP!
     
    Roger Mills, Nov 9, 2006
    #5
  6. Guest

    Roger Mills wrote:
    > In an earlier contribution to this discussion,
    > <> wrote:
    >
    > > My father, our last surviving parent, died about a year ago. The value
    > > of his estate was less than the threshold for inheritance tax.
    > > My brother and I are sole beneficiaries and I am the sole executor.
    > > We decided between us to spend some of the liquidated assets to
    > > improve the property, mainly to increase its desirability so that it
    > > wold be sold quickly.
    > > We have now sold the property and partly because of market increases
    > > and partly because of the improvements the value has increased by
    > > £40,000.
    > > We invested less than £10,000 and did a lot of the work ourselves.
    > > At this new value we have exceeded the inheritance tax threshold for
    > > 2005, £275,000 by about £36,000.
    > > Is the estate now liable for inheritance tax or are we as individuals
    > > each liable for capital gains tax?
    > >
    > > I believe CGT. We inherited the property at the value on the day of my
    > > father's death and so any improvements we made are outside of the
    > > administration of the estate. My brother thinks I should declare
    > > inheritance tax and try and claim the property development costs as an
    > > executor's expense.
    > > Looking at the forms for inheritance tax I can't see quite how I can
    > > do this.
    > >
    > >
    > > Who is right?

    >
    > You are. IHT is based on the value of the estate at the time of death - i..e.
    > *before* you improved the house.
    >
    > Have you got an independent valuation of the value at the time of death?
    >
    > Provided you haven't used your CGT allowances elsewhere, there should be
    > little CGT to pay. The gain is around 30k - i.e. 15k each, and you each have
    > an allowance of something approaching 9k (I forget the exact figure). You
    > *may* even be able to spread the gain across 2 tax years in which case
    > there'll be *nothing* to pay. [Not sure about this last point - others will
    > advise].


    I'm in a similar position to the original poster. I thought to maximise
    the value of the property bu I never thought it might affect the value
    of the estate.
    How do you submit a tax return for an estate? I would have thought it
    would be "off the radar" as far as the taxman is concerned.
     
    , Nov 9, 2006
    #6
  7. >>> Who is right?
    >>
    >> You are. IHT is based on the value of the estate at the time of
    >> death - i.e. *before* you improved the house.
    >>
    >> Have you got an independent valuation of the value at the time of
    >> death?
    >>
    >> Provided you haven't used your CGT allowances elsewhere, there
    >> should be little CGT to pay. The gain is around 30k - i.e. 15k each,
    >> and you each have an allowance of something approaching 9k (I forget
    >> the exact figure). You *may* even be able to spread the gain across
    >> 2 tax years in which case there'll be *nothing* to pay. [Not sure
    >> about this last point - others will advise].

    >
    > I'm in a similar position to the original poster. I thought to
    > maximise the value of the property bu I never thought it might affect
    > the value of the estate.
    > How do you submit a tax return for an estate? I would have thought it
    > would be "off the radar" as far as the taxman is concerned.


    The value of the estate has to be calculated at the date of death. Anything
    that happens after that date becomes the responsibility of the
    beneficiaries. Let me give an example that I have had to deal with recently.
    A relative died and left the bulk of their estate to me. As executor I had
    to collect the monies from various places and pay the debts and the
    leagcies. One of the deceased's assets was a Mini Cash ISA the interest on
    which was of course tax free. Between the date of death and the time I
    obtained probate the money continued to earn interest but was subject to the
    usual tax deduction. As the main beneficiary I have to include that on my
    next tax return because it has nothing to do with the estate. I did however,
    have to submit a tax return for the deceased covering the period from 6th
    April 2006 to the date of death. As it happened the deceased was below the
    tax threshold and nothing was actually payable. Obviously there are much
    more complicated possibilities but most are quite straightforward.

    Peter Crosland
     
    Peter Crosland, Nov 9, 2006
    #7
  8. Roger Mills Guest

    In an earlier contribution to this discussion,
    <> wrote:

    >
    > I'm in a similar position to the original poster. I thought to
    > maximise the value of the property bu I never thought it might affect
    > the value of the estate.
    > How do you submit a tax return for an estate? I would have thought it
    > would be "off the radar" as far as the taxman is concerned.



    Dunno in detail - but I would have thought that if property is involved, you
    would have to get Probate, and go through all the official channels.
    Probably best to employ a solicitor.

    The Which? book "Wills & Probate" should explain it all - and may well give
    some clues as to how to go about it if you want to DIY it.
    --
    Cheers,
    Roger
    ______
    Email address maintained for newsgroup use only, and not regularly
    monitored.. Messages sent to it may not be read for several weeks.
    PLEASE REPLY TO NEWSGROUP!
     
    Roger Mills, Nov 9, 2006
    #8
  9. Guest

    Roger Mills wrote:
    > In an earlier contribution to this discussion,
    > <> wrote:
    >
    > >
    > > I'm in a similar position to the original poster. I thought to
    > > maximise the value of the property bu I never thought it might affect
    > > the value of the estate.
    > > How do you submit a tax return for an estate? I would have thought it
    > > would be "off the radar" as far as the taxman is concerned.

    >
    >
    > Dunno in detail - but I would have thought that if property is involved, you
    > would have to get Probate, and go through all the official channels.
    > Probably best to employ a solicitor.
    >
    > The Which? book "Wills & Probate" should explain it all - and may well give
    > some clues as to how to go about it if you want to DIY it.
    > --


    I have probate and have been through a few official channels. I thought
    I'd ask here as well (but I'll check with the relevant authorities
    before putting myself or the estate at risk.)

    The issue is how do you pay tax for a dead person? Popular opinion is
    that the dead don't pay taxes. The estate remains only until the assets
    are dissolved if my understanding is correct. There is no great signing
    off ceremony.
    But if the estate earns though interest on capital or property then
    what form do you fill in?
    Or is it the case that the beneficiaries of the estate are individually
    liable for tax? Each on the increase in value of the proportion of the
    estate they inherited since the date of death until the end of the tax
    year. Be the assets property, ISAs, shares or savings interest.
     
    , Nov 9, 2006
    #9
  10. wrote:

    > I have probate and have been through a few official channels. I thought
    > I'd ask here as well (but I'll check with the relevant authorities
    > before putting myself or the estate at risk.)
    >
    > The issue is how do you pay tax for a dead person? Popular opinion is
    > that the dead don't pay taxes.


    This is not true. The deceased may owe unpaid income tax. In that
    case, the tax owed is just one of the debts the estate must pay before
    it gets divided up.

    Also, the estate *is* for all intents and purposes the deceased, and
    as IHT is paid by the estate, it is in effect paid by the deceased.

    > The estate remains only until the assets
    > are dissolved if my understanding is correct. There is no great signing
    > off ceremony.


    True.

    > But if the estate earns though interest on capital or property then
    > what form do you fill in?


    I don't think you do as such.

    > Or is it the case that the beneficiaries of the estate are individually
    > liable for tax?


    That is my understanding. The details should be entered in the
    appropriate sections of the beneficiaries' tax returns.

    > Each on the increase in value of the proportion of the
    > estate they inherited since the date of death until the end of the tax
    > year. Be the assets property, ISAs, shares or savings interest.


    Yes.
     
    Ronald Raygun, Nov 9, 2006
    #10
  11. >>> I'm in a similar position to the original poster. I thought to
    >>> maximise the value of the property bu I never thought it might
    >>> affect the value of the estate.
    >>> How do you submit a tax return for an estate? I would have thought
    >>> it would be "off the radar" as far as the taxman is concerned.

    >>
    >>
    >> Dunno in detail - but I would have thought that if property is
    >> involved, you would have to get Probate, and go through all the
    >> official channels. Probably best to employ a solicitor.
    >>
    >> The Which? book "Wills & Probate" should explain it all - and may
    >> well give some clues as to how to go about it if you want to DIY it.
    >> --

    >
    > I have probate and have been through a few official channels. I
    > thought I'd ask here as well (but I'll check with the relevant
    > authorities before putting myself or the estate at risk.)
    >
    > The issue is how do you pay tax for a dead person? Popular opinion is
    > that the dead don't pay taxes. The estate remains only until the
    > assets are dissolved if my understanding is correct. There is no
    > great signing off ceremony.
    > But if the estate earns though interest on capital or property then
    > what form do you fill in?


    As executor none usually. Although the executors are also trustees and as
    such there may be a liabilty for tax by the trust.

    > Or is it the case that the beneficiaries of the estate are
    > individually liable for tax? Each on the increase in value of the
    > proportion of the estate they inherited since the date of death until
    > the end of the tax year. Be the assets property, ISAs, shares or
    > savings interest.


    In many cases yes but see above.

    Peter Crosland
     
    Peter Crosland, Nov 9, 2006
    #11
  12. Robert Guest

    Peter Crosland wrote:
    > >>> Who is right?
    > >>
    > >> You are. IHT is based on the value of the estate at the time of
    > >> death - i.e. *before* you improved the house....

    >
    > Peter Crosland



    But if the executors sell (within some time frame which escapes me) the
    house for a value that is higher than the probate value then is there
    not an option for Capital Taxes to retrospectively revise the probate
    value to be the actual sale value?

    Robert
     
    Robert, Nov 10, 2006
    #12
  13. Robert wrote:
    > Peter Crosland wrote:
    >>>>> Who is right?
    >>>>
    >>>> You are. IHT is based on the value of the estate at the time of
    >>>> death - i.e. *before* you improved the house....

    >>
    >> Peter Crosland

    >
    >
    > But if the executors sell (within some time frame which escapes me)
    > the house for a value that is higher than the probate value then is
    > there not an option for Capital Taxes to retrospectively revise the
    > probate value to be the actual sale value?


    The value for probate is the usually the open market value at the date of
    death. The value can be revised retrospectively if HM Revenue and Customs
    can prove that the value for probate is wrong because of a mistake or fraud.
    Many years ago I helped a friend get the value changed because it had been
    significantly undervalued in an attempt to defraud him as a legatee. The
    Inland Revenue, as it was then, penalised the perpetrator quite hard and in
    fact they were lucky not to be prosecuted as well. HMRC will not alter the
    value just because prices have risen between the date of death and the sale
    date. Obviously the valuation at the date of death has an element of
    conjecture in it but provided a reasonable valuation has taken place then
    there should not be a problem. However, it is wise to remember that the
    HMRC, are not fools and do not appreciate having the Mickey taken.

    Peter Crosland
     
    Peter Crosland, Nov 10, 2006
    #13
  14. Peter Crosland wrote:

    > However, it is wise to
    > remember that the HMRC, are not fools


    I know someone who will disagree with this.
    His name is also Peter.
     
    Ronald Raygun, Nov 10, 2006
    #14
  15. Peter Saxton Guest

    On 8 Nov 2006 17:48:21 -0800, wrote:


    >My brother and I are sole beneficiaries


    How can two of you be sole beneficiaries?

    --
    Peter Saxton from London
     
    Peter Saxton, Nov 10, 2006
    #15
  16. Peter Saxton Guest

    On Thu, 9 Nov 2006 13:23:47 -0000, "Peter Crosland"
    <> wrote:

    >>>> Who is right?
    >>>
    >>> You are. IHT is based on the value of the estate at the time of
    >>> death - i.e. *before* you improved the house.
    >>>
    >>> Have you got an independent valuation of the value at the time of
    >>> death?
    >>>
    >>> Provided you haven't used your CGT allowances elsewhere, there
    >>> should be little CGT to pay. The gain is around 30k - i.e. 15k each,
    >>> and you each have an allowance of something approaching 9k (I forget
    >>> the exact figure). You *may* even be able to spread the gain across
    >>> 2 tax years in which case there'll be *nothing* to pay. [Not sure
    >>> about this last point - others will advise].

    >>
    >> I'm in a similar position to the original poster. I thought to
    >> maximise the value of the property bu I never thought it might affect
    >> the value of the estate.
    >> How do you submit a tax return for an estate? I would have thought it
    >> would be "off the radar" as far as the taxman is concerned.

    >
    >The value of the estate has to be calculated at the date of death. Anything
    >that happens after that date becomes the responsibility of the
    >beneficiaries.


    This is wrong. A tax return(s) is/(are) required from the date of
    death until the completion of the administration of the estate.

    > Let me give an example that I have had to deal with recently.
    >A relative died and left the bulk of their estate to me. As executor I had
    >to collect the monies from various places and pay the debts and the
    >leagcies. One of the deceased's assets was a Mini Cash ISA the interest on
    >which was of course tax free. Between the date of death and the time I
    >obtained probate the money continued to earn interest but was subject to the
    >usual tax deduction. As the main beneficiary I have to include that on my
    >next tax return because it has nothing to do with the estate. I did however,
    >have to submit a tax return for the deceased covering the period from 6th
    >April 2006 to the date of death. As it happened the deceased was below the
    >tax threshold and nothing was actually payable. Obviously there are much
    >more complicated possibilities but most are quite straightforward.
    >
    >Peter Crosland
    >


    --
    Peter Saxton from London
     
    Peter Saxton, Nov 10, 2006
    #16
  17. Peter Saxton Guest

    On Fri, 10 Nov 2006 17:13:35 GMT, Ronald Raygun
    <> wrote:

    >Peter Crosland wrote:
    >
    >> However, it is wise to
    >> remember that the HMRC, are not fools

    >
    >I know someone who will disagree with this.
    >His name is also Peter.


    I think they are incompetent rather than fools.

    --
    Peter Saxton from London
     
    Peter Saxton, Nov 11, 2006
    #17
  18. >>> How do you submit a tax return for an estate? I would have thought
    >>> it would be "off the radar" as far as the taxman is concerned.

    >>
    >> The value of the estate has to be calculated at the date of death.
    >> Anything that happens after that date becomes the responsibility of
    >> the beneficiaries.

    >
    > This is wrong. A tax return(s) is/(are) required from the date of
    > death until the completion of the administration of the estate.


    Perhaps you would like to explain when it is necessary? AFAIK any income
    after the date of death is nothing whatsoever to do with the estate. I
    specifically asked HMR&C about this and they stated that in most cases it
    was not required. It certainly would not be so in the case the OP asked
    about.

    Peter Crosland
     
    Peter Crosland, Nov 11, 2006
    #18
  19. John Boyle Guest

    In message <4555b7eb$0$8754$>, Peter
    Crosland <> writes
    >>>> How do you submit a tax return for an estate? I would have thought
    >>>> it would be "off the radar" as far as the taxman is concerned.
    >>>
    >>> The value of the estate has to be calculated at the date of death.
    >>> Anything that happens after that date becomes the responsibility of
    >>> the beneficiaries.

    >>
    >> This is wrong. A tax return(s) is/(are) required from the date of
    >> death until the completion of the administration of the estate.

    >
    >Perhaps you would like to explain when it is necessary? AFAIK any income
    >after the date of death is nothing whatsoever to do with the estate. I
    >specifically asked HMR&C about this and they stated that in most cases it
    >was not required. It certainly would not be so in the case the OP asked
    >about.


    Many wills create a trust, albeit a temporary one, in which the execs
    hold the assets in trust. A trust is assessable for tax on its gains and
    income. In many cases, you are correct, but in other cases it is the
    execs, as trustees, who have to pay any tax due.

    --
    John Boyle
     
    John Boyle, Nov 11, 2006
    #19
  20. Peter Saxton Guest

    On Sat, 11 Nov 2006 11:45:18 -0000, "Peter Crosland"
    <> wrote:

    >>>> How do you submit a tax return for an estate? I would have thought
    >>>> it would be "off the radar" as far as the taxman is concerned.
    >>>
    >>> The value of the estate has to be calculated at the date of death.
    >>> Anything that happens after that date becomes the responsibility of
    >>> the beneficiaries.

    >>
    >> This is wrong. A tax return(s) is/(are) required from the date of
    >> death until the completion of the administration of the estate.

    >
    >Perhaps you would like to explain when it is necessary? AFAIK any income
    >after the date of death is nothing whatsoever to do with the estate. I
    >specifically asked HMR&C about this and they stated that in most cases it
    >was not required. It certainly would not be so in the case the OP asked
    >about.
    >
    >Peter Crosland
    >

    It's necessary when the estate receives income or gains.

    I agree it wouldn't be in the case the OP raised.

    --
    Peter Saxton from London
     
    Peter Saxton, Nov 11, 2006
    #20
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