Capital gains Tax explain please

[Queenofkittens]

Me and my brother have inherited my late mother's home (flat) and at the time of probate the solicitor did an estimated value of the property by looking at what similar ones had sold for in the borough, it was around 150k. My mother died last August, got probate in the November, flat up for sale last week for £170k and had an offer of 175k which we accepted. I don't believe the property has particularly increased due to any work we done, we paid to have it all decorated by a friend for 1k and tidied up the garden but that's it. Now the solicitor says we might have to paid capital gains tax, can someone explain in layman's terms please? New to all this!

Sorry for putting in AIBU no idea which topic to put!

I’m sorry for your loss. Who currently owns the flat? Is it still part of your mother’s estate (sounds likely) or has the solicitor(?) transferred it into your names?

Try reading this:
https://the-probate-network.co.uk/articles/understanding-capital-gains-tax-on-inherited-property-in-the-uk/

I’ll give an example from my own situation ( changed some minor details)

My dad gifted me his flat in 2010. I sold the flat in 2020.

I got a Red book ( historic) valuation from a surveyor who estimated the flat was worth 400k in 2010. But by the time I sold it in 2020 it was worth 600k.

The gift had increased in value by 200k so I had to pay Capital Gains Tax to the inland revenue on that 200k when I sold it.

It sounds like you may have to pay tax on the 25k your gift has increased by.

Yes, and the solicitor has to pay off 'debt' from the inheritance first that my mother had when she passed. It's literally her care home fees (me and my brother couldn't sell the flat at the time we didn't have POA) and roofing works that the council did, me and my brother will get whatever is left over.

So the property was valued by a surveyor, our solicitor just went on to zoopla and gave an estimated value, which I did think at the time was very low!

I think the inland revenue would accept an estimate from a solicitor.

If you think the estimate was very wrong you could pay for a Red Book valuation yourself from a local surveyor. But they cost a few hundred pounds and you may not have much tax to pay anyway.

You said above that your solicitor looked at what similar flats has sold for in the borough. Surveyors doing a Red book valuation would do the same as well as visually inspecting the property. You may not get a higher valuation from them so it’s risky.

There are annual allowances to offset so it won’t be due on full 25k (12.5k each). Ideally you would have had EA valuations at the time of inheriting . Debts will need to be settled from the estate too before you inherit.

Okay that makes sense, annoying but isn't all tax!

Having gone through this with my husband's late parents, my understanding is, if you sell the house on after probate, you are unlikely to be liable for capital gains tax unless the property is worth significantly more at point of sale than it was at the time of your Mum's death.

Property sold following inheritance is considered in the same manner as when you sell your own house if you do it as promptly as probate allows. You don't need to pay capital gains on a property you have lived in even if it makes you a lot more than you paid for it. Your parent living in it and passing it on to you is treated with the same consideration.

If, however, you leave the house empty, or rent it out for a period of time, during which time it significantly increases in value, if you later chose to sell, you'd be liable for capital gains tax, because the house is then viewed for tax purposes as an asset, rather than a home.

Capital gains tax is really aimed at houses bought and sold for the purpose of investment return, for example, buying a house to do up and sell on for profit. It's not something you have to pay on a property you have lived in, and that extends to.properties your family have lived in and left to you unless you leave it for a number of years without living in it yourselves and then sell at a higher value than it was worth when your mum died.

I hope that makes sense.

https://crestsurveyors.co.uk/what-happens-if-house-sold-for-more-than-probate/ (just one of numerous links goggling "revising probate property figures").

Speak to the solicitor who did the probate.

I don’t know about that @ObelixtheGaul ( love the username) because I had to pay CGT and the flat had not been used as an investment though we weren’t living there either (complicated situation). OP has not said she is living in the flat.

CGT rules are pretty complicated and every situation is different so I think you need to take legal advice @Queenofkittens

Yes, it does depend on the gap between the death and when the house was sold, and what the valuation difference is at point of death to point of sale. We didn't have to pay CGT because the house hadn't increased in value between the death and the moment of sale. I probably should have made that clearer.

It sounds as if the house was your DM’s only home. Although it has transferred to the estate on her death it ought to qualify for Private Residence Relief in all or part.

If she has not let it out and wasn’t away for more than 3 years I think the executor can use the relief.

https://www.gov.uk/tax-relief-selling-home/y/no/no/yes-i-ve-lived-away/no

The above link should explain it better than I have.

I’m not sure whether they’ll need to fill in a form for HMRC (but they should be able to tell them that).

Thank you all so much for your advice/explanations, so tomorrow we are having a 'probate surveyer' (as advised by my mother's solicitor) coming to value the property and this will determine the valuation of the house when probate was done in November last year. Hopefully he'll say that it hasnt gone up by £24k in 5 months and so we won't have to pay any tax, so we shall see!

Hopefully he will say the house price hasn’t changed at all - Good Luck!

Even if he does say it's gone up, it's well worth getting an accountant to go through it to work out what you actually owe.

We had to pay CGT (not on an inherited property). We paid an accountant to go through it with us. Cost £300, saved thousands because she understood what we could claim, etc. we went from paying £20,000 by our calculations to paying about £5,000.