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?

The world would be a much kinder place if people didn’t spend so much time trying to evade tax 😢

Remember the spouse inherits at book cost so it's either dispose in lifetime or suffer the IHT.

I’m not sure they really do. It’s like the MN myth that investment bankers all pay no tax. Well whoever thinks that should tell them how as the vast vast majority are uk resident employees and pay PAYE like literally everyone else. The only real way to avoid IHT is give away everything you own and then don’t die for 7 years. Obviously this has huge practical drawbacks which is why offering that advice gets you nil points in your tax finals 🤣

@LennyThePenny There are two different Acts of Parliament for capital taxes. One is the 1984 IHT Act and the other the 1992 CGT Act. Section 62(1)(b) of the CGT Act says that death is not a situation where CGT applies. I googled it and it took me 2 minutes to find that. The executors and in turn the inheritors would receive it at a value of £2.3m in your case. If they sell it 5 years later for £2.8m they will pay CGT at 28% on the £500k growth after inheriting it. The executors will pay IHT instead and there are exemption for the first £325,000 which could rise up to £1,012,000 if the house is the only asset through a marriage and this is the final death. CGT is different because it is 28% on the gain on a disposal in someone's life. IHT is 40% on the whole value on death but in many cases there is £1m tax-free it would appear.

This actually might depend on what the house is used for during the owner’s lifetime. I’m some circumstances it could be a business asset. What do they do with the house if they don’t live in it?

Sorry but you are completely wrong here. there won’t be any gains rolled over on a residential property as you can’t even roll over gains on residential property. There is an automatic uplift to probate value on death for capital gains tax purposes, so if the person that inherits sells fairly quickly unless the value of the property has increased massively in a short time there will be no capital gain

Or you could gift it all to charity on death if you we’re feeling charitable and didn’t want to pay tax

The element that falls into a persons basic rate tax band is 18% element thst falls into higher rate tax band is 28%

It is correct that there is no CGT payable on death. The base cost of the property is uplifted and the beneficiary inherits the cost at market value. They pay IHT, not CGT. When or if the beneficiary comes to sell the property at a later date, their base cost will be the probate value (the value they inherited at).

IHT and CGT are both capital taxes. Even HMRC would not be so unreasonable as to apply two capital taxes to the same asset on the same event.

Ahh apologies - I’m used to land and didn’t realise property was different. I inherited land and will pay CGT on the gain from when my dad bought it in 1990 rather than when I inherited it in 2022 (if I sell)

Land is the same, you only pay capital gains tax on the gain between probate value when you inherited it and what you sell it for. It would only be different if the land had been transferred to you prior to death but even then a gain would arise when the other person gifted it so you wouldn’t be going back to 1990 value either way

I don't think paying 40% tax in order to not pay 28% is a exactly sensible way of avoiding tax!

"Matilda1981
Ahh apologies - I’m used to land and didn’t realise property was different. I inherited land and will pay CGT on the gain from when my dad bought it in 1990 rather than when I inherited it in 2022 (if I sell)

Land is the same, you only pay capital gains tax on the gain between probate value when you inherited it and what you sell it for. It would only be different if the land had been transferred to you prior to death but even then a gain would arise when the other person gifted it so you wouldn’t be going back to 1990 value either way"

That depends. If the land was a business asset then it would be possible for gift relief to have been given on the transfer of the land which essentially does mean the giftee would take on the original cost of the giftor

It is actually. if a person sells a property before they die and pays capital gains tax at 28%, then dies then the cash from the property sale (less the cgt paid) still forms part of their estate so they can end up paying 40% on the value of the cash held as well as the capital gains tax already paid. If they don’t sell the property and it is in their estate then they pay 40% IHT only and no CGT

But poster says land is inherited so why would there be a gain to roll over?

Yes this has happened in our family, IHT had to be paid before probate was issued so we couldnt even sell it without paying a massive tax bill first. About 2/3rds has been paid on account, we then got issued probate which allowed us to put it on the market, then the rest will be paid up, including GCT due to the sale, once the sale finally goes through

I dont know what people do if for example you're on benefits and have no way of borrowing money to pay the tax bill in order to be able to put the property up for sale.

"But poster says land is inherited so why would there be a gain to roll over?"

I've spoken to people who think inheritance is on assets given to them by family members when they are alive. I did just assume it was a similar situation here.

You can get bank loans charged against the property specifically for this purpose. So the beneficiary would apply for the loan, sell the house and the loan would be paid back with some interest. Because it’s a secured loan even if you’re on benefits you can get one in principle.

You do not even need to get a loan from the bank. HMRC will give credit to allow probate to be obtained if there are no liquid assets left in the estate to pay the tax.

If the home is the principle and only residence of the inheritor then I guess there'll be no CGT acruing. So if they ever did sell down the line they'd keep the lot? (inheritance tax aside)

True but I think if you’re wanting to avoid tax it’s usually for the purposes of maximising what you pass on. Hence this answer, also nil points . Sorry 🤣. Although to be fair there is usually a hint in the question like “jack’s child John needs 800k to pay off the mafia after his father’s death. How can Jack ensure that John gets this much from the estate”

This is the key point!