Capital Gains tax on Inheritance?

Thanks for any help on this!

Did you: a) Inherit a 25% share from the estate with the house being put in joint names and then sold later. (which is what your post implies) or b) Is the house being sold whilst still in the estate and then you get your entitlement as a distribution afterwards. (which is more normal)

Hi Miss L, It's option b - I inherited 25% of the house which as you say was sold as part of the estate and then once the estate is settled I will get my share.

Miss L. Toe wrote:

Then (it is my understanding) that CGT does not apply, and all taxes (IHT) will be settled by the executors before you get anything.

(With the minor exception of taxable interest earned on the executors account).

It would be safest to ask the executors if any tax will be due (as long as they arent going to charge you a fortune to tell you).

Miss L. Toe wrote:

Thanks Miss, from reading posts in this group I was getting the impression that was the case but wanted to ask my specfic situation. CGT is rather a confusing one to my simple mind!

Thanks for taking the time to respond!

Miss L. Toe wrote:

Had the answer been option (a) then CGT would not have applied either.

The heir would be treated as having acquired the 25% share at its value at date of death. CGT would only apply in respect of gain from the time

*he* (the heir, not the deceased) acquired it (i.e. from date of death) up until when he sold it. Assuming this to be only a short while, and assuming that the property's not a manor worth millions, there will be too little gain to breach the annual exemption, so unless he is realising significant other gains in the same year, he'll be safe.

Assumptions are dangerous :-)

especially when there are many of them.

You just listed 3 situations where CGT would/could have applied :-)

Who pays the income tax on this interest? The estate or the heir? I believe it is the heir, but the executors (especially where they are money grubbing accountants or lawyers) my offer to deal with this aspect on behalf of the heirs (and charge a fortune for it). Where the heirs are basic rate taxpayers and the tax on the interest is retained at source by the banks, this doesn't actually involve any work (beyond establishing the fact that the heirs are indeed BRTPs), but they'll still charge a fortune for it.

I reckon the same is true of CGT, so if one of the the 3 "dangerous assumption" situations applies, then I reckon option (b) will not avoid CGT liability, either. Where the money grubbing professional executors deal with CGT for and on behalf of the heirs, which is now less straightforward since they basically have to get involved in the heirs' tax affairs, and this will cost an enhanced fortune, then all tax due (including CGT) will already have been deducted from the dosh when the heirs finally receive it.

I would think that it would be simpler if the executors did *not* deal with CGT for the heirs but were instead simply to distrubute the loot net of bank retained basic rate interest income tax and gross of CGT if potentially due. The heirs would be left to reclaim interest tax (or pay the higher-rate top-up) where applicable, and to make their own arrangements for paying the CGT if any.

You are incorrect, the estate pays all taxes due (so thats for the executors to arrange), then the remaining money is distributed. (just doing this now)

I am not an expert but I think you might be not 100% correct.

My understanding is that the estate pays basic rate (in most cases) tax on the interest.

This might be reclaimable by non-taxpaying residual beneficeries. Extra (to make it up to 40%) might be payable by higher tax rate paying residual beneficeries.

Checkout the R185

Note to the OP if you pay anything other than basic rate tax ask your executors for an R185 - the impact (if any) in pounds is likely to be very small.

My bad, I read your first sentence, and entirely missed the key point in the second one in parethenses, about tax on interest being the point at issue. Sorry.