Probate and capital gains tax....I'm confused anyone know a bit more about this?

[Dogsandchocolaterule]

Hi all need some advice from someone a bit more financially savvy than me.

My lovely grandad that I'm very close to has no other family apart from me and wants to leave his flat to me in his will, it's worth 200k.

The flat has a monthly maintenance on it of £150 which will still need to be paid even when he has passed away until probate has gone through. Which I have heard can take months.

So he is thinking about transferring the deeds of his flat to me so that when he passes it doesn't have to go through probate and it could be sold quickly as it would be mine. But the solicitor said that I would then have to pay substantial Capital Gains tax.

Can anyone explain why?

First of all, is your grandad’s death imminent? If not, then he would be advised not to give away his property as it may be needed to be sold to pay for a care home if he needs one.

There is no capital gains on your private property, though care home fee and CRAG regulations are far more punitive

If he has a will and straightforward finances then probate won’t take all that long

So your grandad can transfer his flat to you, although as another reply mentioned you need to consider care home fees- local authorities do take into account any recent transfers of assets which they call "deprivation of assets", so they will come after the money.
If you own the flat you will need to pay capital gains tax on the difference in market value when your grandad transfers the flat to the point at which you sell it (assuming you wouldn't live there as your main residence).
It will therefore depend on how long you plan to own the flat for and what the property market does in the meantime.
There would be no CGT for your grandad if he did transfer the flat to you as long as it has always been his primary residence.

For IHT - it sounds like he doesn't have any other assets and if his total
Estate is under £325k you don't need to worry about IHT.
If his estate could be over £325k then you need to consider the IHT position if wanting to transfer the flat to your name before his death as this would be a PET

CGT would be liable if you subsequently sold it, especially having not lived in it as your primary residence. Apart from potential deprivation of assets short term, there would be Inheritance Tax due on the value should he die within seven years as that value, or part thereof, would be considered as within his estate.

Do I you own another property?

What other assets does he have?

He will have IHT allowances £325k nil rate band and a further residence allowance of 175k to pass on.

If your grandmother has died without using her allowance and it was after 6th April 2017 then there is £1m in assets than can be passed on to direct descendants tax free.

CGT is chargeable unless it's put in trust and you are going to a lot of trouble to avoid a few payments while you obtain probate, this will probably take 6 months or so.

If his estate is over this and he is in good health then he might want to make some gifts now as the 7 year clock will start in a potentially exempt transfer.

You can utilise a fund using business property relief that will see the money out of his estate in just two years.

If you have two properties then on selling the one that is not your main home you will pay CGT.
If it's given to you as a gift and the gift giver dies within 7 years I think that can be counted towards inheritance tax which is currently payable on anything over £325k

If your grandfather dies after 7 years of giving you the flat, then no capital gains tax and no IHT. (Although depending on his assets you might be under the IHT limit)
The amount of capital gains increases the shorter the time between him gifting you the flat and his death (sorry I know that seems blunt and callous.) I think I'm right in saying if you own a property and your grandfather gifts you his flat, then the gain is at 40% of the property value of the flat at the time of transfer.
If you don't currently own a property then, as I understand there is no capital gain until you come to sell it. The tax is then calculated between the value when given to you and any increase in value, so supposing you sold it next year for 300k, you'd pay 40% of 100k (after 7 years there wouldn't be any capital gains, the question is do you want to keep the flat or sell it? ). If you were looking to sell then financially you'd be better off going through the inheritance route, as whatever you do, you'll have the monthly maintenance bill.
Probate really doesn't need to take long, especially if it's straight forward and under the IHT threshold.
The IHT threshold was due to increase, so you might want to check if it's still at £325k. I don't know if the gov. Did increase it to 500k, or when that proposed date will come in.
I've mentioned capital gains at 40%, but I think that might be dependent on earnings and the amount of gain. The tax laws aren't exactly straightforward. Hopefully someone else <more financially savvy than me> will see this and be able to comment!

until probate has gone through. Which I have heard can take months.

@Dogsandchocolaterule It's not getting the probate that can take months - it's gathering all the information together for the probate form, and relying on over-stretched lawyers who have taken on more work than they can reasonably handle. If your grandfather wants to make things quick and simple, he can make sure all of his assets and liabilities are documented, and paperwork neatly filed, and that his executor knows where everything is. Then hopefully his executor will be savvy enough to know that they don't need a lawyer to do probate - they can fill the forms in online - it's no more complicated than doing a self-assessment tax return, and the gov.uk website has plenty of guidance.

My mum died 2 years ago in late November after a terminal illness. She had everything filed ready for me (as joint executor with my brother) to fill in the forms. It took a couple of weeks to get final balances from her banks, but I was able to submit the forms before Christmas. Probate was granted mid-January.

@twinkz I’ve been waiting 2 months for probate so far - online service says it hasn’t even been allocated to a caseworker yet. They said to allow up to 16 weeks before chasing. So yes, it can take months!

Capital gains tax in simple terms would be based on the difference between the market value of the flat at the time it was transferred, what it sells for, and whether you’ve ever lived there as your main residence. I’d take your solicitor’s advice as they should know what they’re talking about.

When my cousin did the probate for her mum it took 2 years. Her mum had lots of small bank accounts and bought lots of things on hire purchase, so it took a very long time to find and reconcile everything. But once my cousin submitted the forms, it only took a month.

It did take about a month for my case to be allocated to a case worker but, once allocated, probate was granted within days. More complex or 'suspicious' cases will obviously take longer than simple cases.

@Dogsandchocolaterule , regarding the capital gains, compare these scenarios:

1. Your grandfather owns the house when he dies. You inherit it and get it formally valued at £200k. You don't live in it as your main home. Instead, you clear it out, smarten it up a bit, and put it on the market. If it sells for £200k or less there will be no capital gains to pay. If it sells for £250k you will need to pay capital gains on the £50k because that is the 'gain' from when you inherited it.

1. Your grandfather gifts the house to you now, then lives in it "rent free" for 2 years before he dies. His probate form will now be more complicated. Gifts of assets within the last 7 years will form part of his estate for inheritence tax purposes, and his 'rent free' living will be taken into account too, because he has continued to benefit from the asset. Also, as you were gifted the house, rather than inheriting it, you will be liable for Capital Gains Tax on its full value when you sell it.

If you rent it out rather than sell it, then it becomes more complicated. If you live in it as your own permanent home for long enough, it becomes less complicated.

There is lots of guidance on gov.uk.

Really helpful thank you and makes a lot more sense putting it like that.

Probate doesn't take that long. My FIL passed away and it took around 9 weeks for probate.