A lot of estates have a property in them, whether it is the main residence or for investment purposes. When they get sold after death, this issue of CGT will need to be considered.
"It depends on who is selling it and for what reason!"
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 year of death and the following year, 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 sale 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.
"Gains will be charged at either 18% or 28%!"
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.
Until next time ...
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about the sale of a property post death, do call me on 01908 774323 and let's see how I can help you.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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