I hope someone here has been in a similar position and can offer some informal advice before we incur a professional’s fee.
The estate of my other half’s late father was split evenly between her and her brother. Probate should be completed very soon. She has agreed to sell her share of the house, by far the majority of the value of the estate, to her brother. Is she liable to Capital Gains Tax on the sum she receives from the sale?
Thanks in advance for any input you can give.
Assuming you’ve already dealt with any Inheritance tax aspects – there is a potential cgt liability but it depends on how much she sells her share for compared to the the value of the house at the date it was inherited. I’d advise getting some professional advice from a local accountant, it shouldn’t be too expensive to deal with something like this but it will be worthwhile.
What B said
When I inherited my parents’ house, the probate people asked me how much I wanted it valued at – they could value it high, which would mean I might have to pay inheritance tax, or value it low, which would mean I’d have to pay more CGT when I sold it.
So what you need to know is how much it was valued at for probate purposes, and how much it is valued at for sale. If the two figures are the same, then there shouldn’t be any CGT to pay. However, if you’re selling it at a higher value than was registered at probate, then there will be.
At least, that’s how I understand the position.
Thanks, that is the position. A few valuations, which my partner has seen, were carried out for probate and the agreed sale price is her half of the probate valuation.
I t may be worth getting an independant valuation of the house’s value before agreeing to a sale. It’s not very dificult to get a valuation shall we say favoured to your advantage. I’m not suggesting the valuations are incorrect but I would suggest getting your own valuation for balance.
We do think the valuation may be a little light, but only little. For the sake of a quick sale and saving on estate agent fees and so on my other half is prepared to accept the offer made.
CGT needs to be paid within six months of the sale if you are due to pay CGT as far as I remember..
I’d go with what Bargepole said.
I think you get £6k of any gain “free”.
Another vote for Bargie. My accountant saved me more than he cost me (when I still had one).
Thanks for the sensible words everyone. After scanning the HMRC website (baffling) and Money Saving Expert (much clearer) it seems that there is no inheritance tax because the total estate is under half a mil and includes the house, and no CGT because the probate value is the same as the agreed value on which my partner’s half has been based. Nonetheless we’ll find a friendly tax advisor to confirm that.
Depends.
The mechanics.
As stated above any CGT would be based on the difference between the value at sale and the probate value.
Your sister is likely to have available her £6,000 annual CGT allowance for 2023/24 to set off against any gain.
To abate a more substantial gain, and if your sister is married/civil partnership she could transfer half to partner and both could use their personal CGT allowance
What be aware of
In a transaction like this (brother and sister) it isn’t as simple as agreeing a value between them and that’s the end of it. HMRC have legislation which can impose what they consider an open market value (on the vendor) and calculate the tax on a higher figure than actual proceeds. Perhaps unlikely if probate value (at date at death not when probate is concluded) is minimal.
From tax book:
“ A disposal of an asset between connected persons is deemed to take place for a consideration equal to the market value of the asset at the date of the disposal, irrespective of any actual consideration that is paid.”
I.e. if there is a reasonable amount of time between date of death (when probate value is established) and date of sale it would not be expected the values would be the same. So be wary of simply saying in a connected party sale (brother and sister) the value is the same as at the date of death.
A factor which might diminish the value (from the brothers
If there is a gain after CGT allowance this will be taxed at 18% or 28% depending on level of total income.
As a residential sale a CGT return is required and tax paid within 60 days of completion
To the earlier comment about choosing at probate to value low or high. Incredibly risky and unprofessional for the probate people to have said such a thing. Although the implications noted are true re IHT (low/high) and CGT.(High/low).
One final point.
In these situations in the unlikely event (they have no staff!) HMRC did get involved you can argue that selling a 50% interest has a value less than half of the whole.
HMRC have to work on a theoretical position between unconnected willing buyer and willing seller. NOT to a brother who already owns half.
The point being that some level of discount could apply given that in the theoretical situation someone purchasing only a 50% interest would expect a discount to reflect not owing full rights, access etc.
Thanks @leem , it’s my partner selling her share of the house to her brother (the co-owner). As mentioned above, there is no difference between the probate and sale value (if anything the market has declined slightly) so we think she’s in the clear but will confirm with a tax adviser.