Capital gains tax query on sale of inherited house

[buckeejit]

Please could someone kindly check my understanding of CGT is correct for sale of my parents house who both died in the last couple of years.

There’s an increase in value of £33,750 since mum’s death, (she was first to die & 4 children were made tenants in common a few years before). Half of that, (her share including the portion gifted to dc), less solicitor & estate agent fees means just under £3k increase for each child, so I think no CGT payable. Is that correct or am
I missing something?

Timeline as follows

2017 -4dc made tenants in common for parents house 12.5% for each child, 25% for each parent.

Dec 21 - mum dies. Property valued at £290k

Feb 23 - dad dies. Property valued at £310k

May 24-house sale agreed at £323,750

Thanks so much for any clarification

Children will pay CGT on the increase in value of the shares gifted to them in 2017 so you would need to know the market value at that date ( unless house was main residence for any of them during that period).
Mum's estate will only pay CGT on increase in value of her share from date of her death. Her annual exemption will be available to offset against gain if less than 3 years since date of death. In year CGT returns need to be filed and tax paid within 60 days of completion if tax is due.

The property value needs to be based on when 4dc became owners.
It’s not about when someone dies, it’s about capital gain during ownership.

Sorry Dad's estate, not Mum's. Who inherited Dad's share on his death. Did it go to Mum ?

Thanks so much-I had thought that the dc shares reversed into mum's estate due to tenants in common being less than 7 years prior - maybe that was only applicable for IHT checks for probate. I had queried with the solicitors at the time if we needed a valuation from 2017 when we became tenants in common & they said no.

House was only main residence for parents so everything of mum's went to dad when she died & then a year later everything split equally to dc when dad died.

I haven't factored in the increase from dad's date of death. Do you mean the CGT would just be calculated from the increase from dad's death, or a combo of his death, her death & date from tenants in common respectively?

As far as I understand this (and I was executor of my DM's estate), your DDad inherited your DM's inheritance tax allowance, so it's double what is quoted for a single person, so £650,000 as opposed to £325,000.
That means that as long as the total gross value of the estate is not above £650,000 you have no inheritance tax to pay, regardless of previous wills - you will have to include previous bequeathments in this unless they are more than seven years prior to the death.
My DM's estate totalled above the single person's IHT allowance, but was below the upper value, so we had no tax to pay.
If your estate is more complicated, it might be a good idea to consult a lawyer experienced in inheritance tax.
The forms are a pain in the backside - one leads to several more, but it is doable as long as you read around all aspects that are relevant, hence why I am suggesting getting someone qualified to do it for you if you feel you need it.
Be prepared for a long wait though, whatever route you choose. The wait time is improving, but I found I could only move things on by emailing - suddenly probate was granted after I did. Good luck.

Let’s say for arguments sake that in 2017 the house was worth £223,750.

So it sold for a £100k gain in 2024.
The DC each gained 12.5%, or £12.5k

Assuming dad died leaving his share of the house equally between the four DC, then the DC also had a gain of £13,750 between them (£323,750 - £310k) i.e. £3,437.50 each DC

So the total gain is £12,500 + £3,47.50 = £15,937.50 per DC

The actual Capital Gains Tax payable by each DC will depend upon each individual DC’s circumstances.

Yes you need a 2017 valuation as this is used for CGT

@vipersnest1 she's not asking about inheritance tax.

That’s a bit of a muddle. The capital gains are for the increase in value from when you became owner to when you dispose of ownership.

Ownership is still valid even though this gift would not have taken the value of the property outside of your parent’s estate. Not because shares revert within seven years but because they were still benefiting from the gift. Gifts cannot have strings attached. In any case, the estate seems to be below the threshold so there was no point in gifting.

@messybutfun gifting part of the property meant it couldn't all be used for care fees should it have been necessary. If the parents were young enough and in good health at the time it wouldn't have been seen as depreciation of assets.

I would strongly recommend that you seek professional help with this.

You need to be sure at what point the various shares became owned. Did your Mum's share on her death definitely go to your Dad, or was it left to the children but with a lifetime interest trust for your Dad for example?

This is quite complicated so do seek professional advice.
Because your parents did not survive seven years after gifting the property, the property becomes a chargeable transfer and goes back into their estate. Further, if your parents continued to live in the property, it is also alright be a gift with reservation.

It's not particularly helpful to think about this as CGT due on the sale of the house. CGT is a tax based on a person's disposal of an asset. If several people owned shares in something then you need to look at each share as a separate asset and work out the CGT on that. There is no such thing as CGT on the sale of the whole house because no one person owned the whole house.

Each of you sold a quarter of the house. That was made up of an eighth acquired in 2017 at market value and an eighth acquired later, though it's not quite clear when or how.

Each child will have a separate CGT calculation in two parts, one for each eighth. For the first eighth this will start with sale proceeds less 2017 market value. For the second eighth you need to know details of the acquisition. If this was by inheritance in 2023 then the calculation will start with sale proceeds less 2023 market value.

You won't necessarily need professional advice on the actual calculations but you will definitely need to be crystal clear on the history of everyone's second eighth, and you may need help with that.

There is so much you need to consider op. Did your parents pay you rent for staying in the house when you owned part of it?
It's not clear whether part of your 'cost' would be based on the 2017 valuation.
Ignore my initial thoughts on the costs as much more clarification is needed and you definitely need to seek professional advice.

Thanks so much all, this is really helpful.

I've already done all the probate paperwork & full IHT reporting as we were tenants in common, (yes it was done to avoid everything being eaten in care home fees). Think I was getting this section mixed in with CGT somehow in error.

So yes, that makes sense that we need a 2017 valuation & calculate the 12.5% gain from then & also a 12.5% gain from dad's death in 2023.

I will try to organise this & then get my brother to run the calcs by his accountant.

Many thanks for your help