Capital Gains Tax has a tax-free uplift to a property's market valuation on sale of a property post-death which means that the base value for CGT tax purposes is reset ...
The first question you need to answer is about who is selling the property, as the outcomes are different depending on whether it is the executors or administrators who are selling it. The second question is about why it's being sold: to realise cash for beneficiaries or has the legal title been transferred to a beneficiary who is not selling it?
In the case of it being sold by an executor, the estate will be liable for any Capital Gains Tax. Executors have exempt amounts available in the tax years of, and following, the disposal and chargeable gains are charged at the higher residential rate, which is currently 28%.
These gains should be communicated to HMRC within 30-days of completion and any Capital Gains Tax paid by the same deadline. But in certain circumstances, post-death disposal of a property may benefit from the main residence exemption.
This is the case when:
- immediately before and immediately after the death of the deceased, one or more individuals occupied the property as their only or main residence
- the individual or individuals is/are entitled to at least 75% of the net sale proceeds or to an interest in possession of 75% or more of the net sale proceeds
- the personal representatives make a claim for private residence relief
As an example, a husband dies, leaving 70% of his share of a jointly owned property to his spouse and 30% to his daughter. On the same by the executors, the spouse receives 85% of the sale proceedings and the daughter 15%. This is because the property has also been the wife's main residence both before and after the husband's death.
Now, if the deeds were transferred and the new owner decided to sell, their based cost for CGT is the market value of the property at the date of the deceased's death. They will benefit from their own annual exemption amounts and the likes of main residence relief, but not if they didn't live there.
It is therefore important to properly plan to sell the property, and full consideration should be given to whether the executors or the beneficiaries should sell it and what CGT will be payable at different levels.
It really is a great idea to talk to a professional tax advisor at the time of writing your will to ensure the best, most tax-efficient outcome for your spouse and other beneficiaries after your death.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.