If you have a colossal capital gain on a house, when you die, does both CGT and inheritance tax have to be paid?

[LennyThePenny]

Fictitiously, if you had a 2M gain and the owner is retired. Could that mean 18% plus whatever inheritance tax is on top?

There's no CGT on death.

I’m confused.

is it the owner’s primary residence? Does the owner still live there?

It's never been the owner's residence. I'm not so sure that GCT is wiped out with death...

CGT on residential property is 28%, not 18%.

There won’t be any CGT to pay just IHT BUT if the person who inherits it wants to sell if they will pay CGT - how much this will be will depend on if the CGT has been rolled over from one person to the next as it’s been inherited down the line.

CGT is charged on a disposal. Death is not a disposal for CGT. The value at the date of death is the value for inheritance tax. If the property were left to someone on death, they would inherit at the probate value I.e. value at date of death, and if they sold it then that date of death value would be the acquisition cost.

So passing on a property at death is a brilliant way to avoid a massive tax bill then. I was thinking the CGT on a 2M gain would be horrendous if it had to be settled on death as it changed hands.

Well not really, as there would be inheritance tax to pay on the full value (subject to the tax free band). I don't think you understand how inheritance tax works!

You could pass it to a spouse tax free, but when the spouse dies there is IHT to pay on their death.

The actual figures are 17k value in the 70s and 2.3M today. So a 2283000 gain.

I understand inheritance tax, but not when there's an existing CGT rolling-up.

No cgt on death but inheritance tax instead so more expensive. If it is passed on to a beneficiary in the will, they inherit at the probate value (essentially the market value at date of death)

If the inheriter receives the property at value 2.3 & their liability is from that point forwards, that's a huge missed opportunity for the inland revenue.

It's complicated.

Inheritance tax is charged at a higher rate than capital gains and so there certainly isn’t a huge tax bill being avoided.

I guess this is why people have offshore trusts.

The issue you may have to consider is, if the house is the only thing in the estate, there is no cash to pay the (MASSIVE) inheritance tax bill.

Only IHT at 40% on death, might have nil rate bands available though.

The base cost for person who inherits the property will be the value of the property at date of death (the probate value).

For capital gains tax you would actually take the base cost at March 1982. You pay CGT at 18% or 28% based on the amount of your income and the amount of taxable gain.

There would be 40% IHT payable on death ( so roughly 850k- ignore nil band for a second). If that was the estate’s only asset then the house would have to be sold to pay the IHT and the beneficiary would get what was left. I don’t understand why you think you wouldn’t pay any tax. Paying CGT would actually be cheaper

You can pay IHT in instalments over 10 years on real property - or you used to be able to, last time I did it. You do pay interest though. Usually you have to pay the IHT upfront to get the grant of probate, but there is this gradual option for real property.

Only capital gains on any amount it increases from valuation at death and when the person inheriting sells. Si if they wait 10 years to sell capital gains tax will be due. AFAIK. Unless it has become their main residence. AFAIK

But there will be iht on the estate @ 40% much higher than the top rate of cgt

And IHT is calculated on the total value, not just the increase in value from date of acquisition.

Unless I’m missing something, you pay IHT at 40% on the 2.3m less the nil rate band. That’s potentially more than you’d pay in CGT, depending on the rest of the estate etc.

It's not.

An offshore trust would be highly unlikely to fix this.

But yes, gains wash out on death so no CGT and the inheritor gets an uplift in base cost. Even better if you leave to a spouse as no IHT to pay and then no CGT when you sell - it's a great tax planning strategy.

It's expected that it will be changed the next time there is a reform to IHT, but no news on when that would be.

Well it is, go check!