Probate Property Sale – Capital Gains Tax ImplicationsWritten on August 2, 2017 by Kirk Rice LLP
The Question:
My father died recently and left his house to me. The probate property valuation was £475,000 and in the current market I am not too sure it will sell for much more than this. Our solicitor led us to believe we would be paying Capital Gains Tax (CGT) on the entire proceeds of sale, but a friend of mine told me that CGT will not be payable as there will be no profit. I have looked at the government website and it’s rather vague and I can’t really make out who is right. Will tax be payable on the entire proceeds, or just on any sum above the probate property valuation? Also, our solicitor has advised us to do a Deed of Assignment on father’s will, to include my husband and son, in order to take advantage of triple capital gains tax relief. Is this a good idea?
Kirk Rice LLP answers:
I will cut to the chase immediately and say that there will be no CGT to pay on the sale of the probate property. Let me explain why;
CGT is payable on gains only, and that means the ‘profit’ made on the sale. If we ignore to begin with that this was an inherited property, and let’s say that you bought the property for £375,000 5 years ago. The £375,000 would be known as your base cost. If the property were then sold today for £475,000 then clearly a £100,000 gain has been made. CGT would then be payable on the £100,000 and NOT the total £475,000 sale proceeds.
With inherited property, of course you have not paid anything for it, and so on first sight you might think that you have a £475,000 gain. However, tax law allows the probate property value to be used as the effective “base cost”. Accordingly, only the gain arising in excess of the probate property value will be subject to CGT. In your situation the likely sale proceeds will be the same as the probate property value, and so there is no gain and therefore no CGT.
I therefore do not see any CGT benefit in entering into the Deed of Assignment.
That covers the CGT side, but I think I should also mention inheritance tax (IHT). I do wonder whether the advice your solicitor was giving you was in respect of IHT. Because it would be true to say that the total value of the house would be included in your father’s estate for IHT purposes. However, if there were no other assets in the estate then the property value would be mostly covered by the IHT nil rate band (£325,000) and the new main residence nil-rate band (£100,000) and so little IHT would be payable.
Finally, there may still be some merit in entering into the Deed of Assignment but this would be for IHT purposes rather than CGT i.e. if you have a notion of giving money to your son it may be sensible to do it that way rather than have it pass into your and your husband’s estate first, as it would then be included in your estate for IHT purposes on your death, should you die within the next seven years.
Read our factsheets for more information on Inheritance Tax:
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Inheritance Tax: A Summary |
If you would like more advice regarding this issue or any other tax matter, please contact one of our Tax Partners, Graham Jennings on 01344 875 000 in our Ascot office or Hadley Baldock on 0208 789 8588 in our Putney office or email info@kirkrice.co.uk.
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The FCA does not regulate tax and trust advice. Information is correct at the time of publishing and details may have changed since.
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