IHT paid - Capital Gains Tax on house question

[Happy99]

I inherited a 50% share of the property where I already lived. The inheritance tax was paid based on an official RICS valuation of the house and probate has been granted. The house is now being sold at a higher value than the RICS valuation. I understand that capital gains tax is payable on the difference in the two values. I asked the solicitor who has been dealing with probate whether I should be exempt from paying this CGT as the inherited house is my primary and only residence and so I was thinking Private Residence Relief would apply to me. The solicitor has said that although I have a relevant entitlement etc. for PPR to apply I would need to own 75% of the property and as I only inherited 50% I will need to pay CGT. Just wanted to double check whether anyone can confirm that this is correct please?

[PallasAthena]

I've not come across that before but it may be the 75% rule that is referred to in section 8 of the HMRC guidance on gov.uk. HS283 Private Residence Relief (2025) - GOV.UK

Alternatively contact HMRC and ask them. The general enquiries line may not be willing to say specifically how the rules apply to you but might be able to point you to the right section of the CGT manual. Or they may just say you have to consult your own tax adviser and send you back to your solicitor! Self Assessment: general enquiries - GOV.UK

[Happy99]

Yes, that may well be it. Doesn't seem a particularly fair rule to me - I will try calling HMRC.

[PallasAthena]

Tax rules aren't required to be fair!

[Happy99]

Called HMRC and after a long wait spoke to an advisor who said CGT wouldn't apply to me. I quoted section 8 to him and he said he had never heard of it, so he passed me onto someone he described as being an expert. Went through my situation again and he also said CGT wouldn't apply. I quoted section 8 to him and he admitted ignorance and tried to pass me onto someone else who was unavailable. I ended up being promised a call back, which can apparently take up to 5 days.

Seems that no one is familiar with the section 8. Personal representatives wording!

[Happy99]

Well it's as clear as mud. The HMRC call back seemed to reach the conclusion that it depends on the exact wording of the will, which created a property trust. So if it is the estate that is liable for tax through the trust (rather than the beneficiaries directly) and the house is being sold within the estate, then Private Residence Relief doesn't apply to me.

However, the company that wrote the will claim that CGT would be payable regardless of whether the will created a Trust or not. I really don't see how there would be any CGT liability if the house had been left 100% to me and I subsequently sold it.

Makes we wonder what would happen if a Deed of Variation was used to adjust the distribution of assets e.g. to leave the house entirely to me. Would that mean I could then sell my own home with PRR and without triggering CGT?

Also, if due to the trust it is the estate that is liable for tax and not the individual beneficiaries, what would happen of one of the beneficiaries was to use a Deed of Variation to reduce their IHT by redirecting a share of the estate. Would that just reduce their share of the tax liability, or the tax liability for the whole estate i.e. all beneficiaries?

[PallasAthena]

I'm as confused as you are! Sorry I don't have suggestions.

Just a comment on Deeds of Variation. One beneficiary can't unilaterally make a DoV that would make other beneficiaries worse off. All beneficiaries affected would have to agree to a DoV.

[Tofros]

May depend on wording of will, but can the trustees appropriate the house to the beneficiaries,prior to sale so they would then be selling as bare trustees which would allow each beneficiary to use their personal capital gains allowances/reliefs. Plus, think about getting your own separate legal advice.