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Capital gains tax and beneficiaries

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  • Capital gains tax and beneficiaries

    For probate a deceased property is valued at figure being the average of two estate agents valuations and inheritance tax paid accordingly.
    The property subsequently sells for more than the probate valuation and capital gains tax is payable on the difference less the annual exemption and selling costs.
    The solicitor advises this CGT can be apportioned to the residuary beneficiaries before completion so that the capital gain is divided between them.
    A day later the solicitor corrects himself saying this will not be possible because appropriation must take place before exchange of contracts not before completion of the sale. Subsequently CGT is paid to HMRC at the full 28% rate.
    If the solicitorís correction is right then should he have known this and submitted a memorandum of appropriation to each beneficiary before exchange of contracts? Further most of the beneficiaries would have made no capital gain in the tax year and were also basic rate tax payers where the rate would have been 18% even if payable. Thoughts?

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  • #2
    It may be possible to reclaim the CGT that has been paid if the beneficiaries had not used their own allowances and the gain was within the time limits.

    Yes, the solicitor should have known but it is the executors that are responsible for all financial dealings within Probate and you do not say if the solicitor was the executor.


    • #3
      Thanks Sam101. The -elderly- executor instructed the solicitor to deal with the deceased estate in it's entirety.


      • #4
        Sorry, I should have mentioned this in my earlier reply.

        If the figure given for Probate was 'x' and when the property was sold in the normal way soon afterwards (how long?) was 'x + y' then the higher figure is notified to the Probate office and figures adjusted accordingly. CGT does not come into it. If however there is a delay in sale for some time, say renting off for a year or so, then the difference would be subject to CGT. .Something your solicitor should know about.

        There are many cases when there are large differences in valuation and sale prices as valuations are rarely the achieved sale price, so this is not uncommon. Such price variations can have an effect on IHT calculations if that tax is a concern.


        • #5
          Exchange of contracts was 5 months after probate. The solicitor insists that the increase in value between probate and actual selling price is subject to CGT not IHT.


          • #6
            What were the two prices? Was there an inheritance tax payable when Probate was dealt with and if so, what amount. Were all allowances considered in calculating the inheritance tax liability?


            • #7
              Property value and assets less £325K allowance gave rise to a 40% IHT payment of £35K. The only applicable allowance was the £325K
              When the property sold for £365K CGT was paid at 28% on the gain above the probate valuation of £325K with deductions for allowances.
              ( The probate value and IHT allowance were only coincidentally the same.)


              • #8
                Roy, each person has an allowance of the £325,000 in respect of inheritance tax, plus £175,000 Residential Allowance. Therefore a total of £500,000 before any inheritance tax would be charged.

                In addition, where there is a married couple and the first one dies, leaving their assets to the spouse, then their allowances can also be claimed. A possible £1,000,000 for a married couple.

                There are situations where a couple are divorced and allowances of the first to die cannot be carried forward. Also situations where on the first death, or before, a gift was made of the nil rate band sum to others and used up, then obviously the allowance cannot be carried forward..

                As we are discussing tax payable, this situation may be a second death, is that correct or can you explain the situation please?


                • #9
                  The deceased had been divorced for many years. No direct descendants so the residential allowance would not apply.
                  Yes we are discussing the tax payable ie after IHT is paid by the executors solicitor and the property sells in excess of the probate valuation. You suggest "the higher figure is notified to the Probate office and figures adjusted" That's what I assumed but the solicitor was adamant that instead of paying IHT (40%) he could pay CGT (28%) on the excess above probate valuation which he duly did.
                  Was this option available to the solicitor?


                  • #10
                    Certainly if after the nil rate band allowance and residential allowance, in total £500,000 there is tax to pay then the CGT route is best.

                    The fact that you had not given all the information initially, my thoughts were that all allowances may not have been considered.

                    The solicitor has in fact dealt with this correctly and no doubt calculated your own capital Gains allowance to offset as much as possible.


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