Capital Gains Tax advice please?

I want to enquire about Capital Gains Tax for a relative. The
situation is that this person and his brother have inherited a house
from their mother who died last year. The house has been sold for
£140,000 to another family member and his wife, initially valued at
£185,000. Things were slow moving until the other relative showed
interest. The brothers coming into the money are both pensioners and
so on a modest income. I see that Capital gains Tax has two rates, 18
and 28 per cent, and that there is an annual exempt amount of £10,600
currently. does this mean that £10,600 of each brother's inherited
amount from the sale does not have CGT charged on it? I'm not used to
dwelling on money issues at all except banal day-to-day stuff so I'm
not the right person to be guessing. Is the gist basically that both
brothers will have to pay 18 % of their £70,000 share?
The relative who's asked me to enquire wants to know this as they
intend to give some of the money to offspring and obviously want to
settle the CGT before they start giving it away.
Thanks for any clarifications and advice. I'm not asking about
loopholes or fiddles. If there is any legitimate knowledge we could
benefit from that would be appreciated. No one involved is at all
wealthy and with the tax being money for nothing for the government
from a relatively modest property all paid for with decades of honest
toil information from impartial knowledgeable people would be
Reply to
If £185,000 was the probate valuation, all capital gains liability was
wiped at the time of death and that is the acquisition cost. If £140,000 was the open market value at the time of the sale, they actually made a capital gains loss.
If the open market value was still £185,000, they have made a disposal
at below market value. That gets complicated, and I think they need to talk to HMRC. If the market value at both probate and sales was the same, there may be no capital gains tax, but it is probable that there has been a potentially exempt transfer with regard to their future inheritance tax.
You should not treat any of the above as quantitatively correct. As I suggest, I think their first action should be to talk with HMRC. As it was below market price, but not an absolute gift, I'm not sure of the fine details of the capital gains.
The solicitor for the sale should have discussed this with them.
Reply to
David Woolley
The tax is payable on the profit made on the sale (difference between buying price, and selling price; I think taper relief comes into it too).
But since this property was inherited, the tax would probably apply on any increase in value (unlikely in this market).
That's assuming the brothers haven't been living in the property, which would make it their primary residence and not subject to CGT.
So, in all likelihood, there is nothing to pay apart from the usual costs (I take it an estate agent was not employed, so just a few hundred pounds).
But: they should not start giving money away, until it has been fully received!
(I sold an inherited property last year, although very shortly after probate. There was no CGT to be considered. And BTW I thought CGT was always at 40%?)
Reply to
Taper relief was abolished a few years ago.
Inheritance tax is 40%. CGT may be at 40% if you are on a 40% tax rate, but I'd have to double check that.
Reply to
David Woolley
Hello and thanks. First I got one amount wrong before. The house was initially being sold for £160,000 and not £185,000. The solicitor who dealt with probate matters said that there would be £16,000 CGT on this, though I forgot to ask if that meant for each brother to pay or between them.
I feel none the wiser yet and not able to pass on what's been said. It does seem there is an amount payable though I'm being told otherwise? Or is there some possibility that the solicitor hoped to deal with the house sale too after the probate stuff was over and was up to a fiddle? I'd like to think they're too well regulated to attempt such a thing but I had a friend who was a solicitor and who committed quite a great act of professional misconduct and ultimately of embezzlement to save his own skin after some kind of cock-up. He had a great amount of guilt about it but did it anyway to save face and his job.
From my layman's calculations each brother seems liable to pay £10,692 on their £70,000 share, at 18% of (£70,000-£10,600***). But I can see I might have boobed there as it's just not my area. I could just leave the brothers and the professionals to it but they've already seen stuff happen like getting a bill for about £300 to pay an £11 bill on the deceased's behalf and they seem to have had a belated rude awakening about the way of things.
Thanks for any further comments.
**£10,600 being the Annual Exempt Amount
Reply to
£16000 corresponds to approximately 28% of (£70K - £10.6K).
The solicitor seems to have decided (1) that the £140K selling price is all profit (presumably because £0 was paid for the property), and (2) that the 28% rate applies (which may of may be true, but is likely to be irrelevant).
Get another solicitor I think.
Reply to
A small point: why would the probate solicitor be involved in the house sale? The sale would be handled by the conveyancing solicitor. There's a form to be filled in when it comes to matters of capital gains (which may not even be connected with the sale, it might be part of someone's tax return; it's been a few years since I filled one in so can't remember).
In any case, with apparently £32000 at risk, it's worthwhile getting second opinions.
Phoning the tax office would be a good start (although, trying to sort something out today, I was passed from HMRC NI department, to pensions, to tax, and back to NI...)
Reply to
Which is wrong.
Also any capital gains is based on the free market price of the sale. As this seems to have been sold at a discount, and to a connected person, the proceeds assumed for the CGT calculation have to be the free
market price, not the actual price.
Definitely, and also talk to the HMRC. There are complex tax and future
inheritance tax issues involved here. I'm not sure of all the details but I'm certain the acquisition cost is the probate value, not zero.
Reply to
David Woolley
Is the solicitor simply saying that the will be a captial gain equal to the sale price minus the probate value?
The OP has not told us the probate value so it's hard to make sense of it.
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