Crosswords29 mins ago
Capital Gains Tax and inherited property
I have been left a share of my father's flat. He died four months ago and since then my sister and her partner have been living there for a good reason (his health means he needs treatment here in the UK and they live in Spain). It has now got to the stage where it looks unlikely they can return and are asking to stay in the property for another 18 months. I am opposed to this for various reasons. They cannot afford rent, would not get a mortgage and it has all the signs of a family bust-up. My question is this - at what stage does the taxman consider this to be a second home/share in a second home and not inherited property (no inheritance tax issues on it) and consider capital gains tax on my share when it is finally sold? I and another sister are executors and could force a sale, but my sister is emotionally tied up in it all and is highly unlikely to take that path.
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As the property is still held by the executors (you) pending sale to the beneficiaries (one of whom is also you) it is the estate of your father that would bear any capital gains tax. However you clearly want to avoid this, as it impacts the final value of your inheritance.
The first point to make, of course, is that capital gains tax is only ever paid on the difference between what the property was worth on death (i.e. the value that you decide to put on the probate application) iand its final selling price less selling expenses (estate agent, conveyancer etc) - and at the moment house prices are not increasing across most parts of the country.
The second point is that the estate of your father is entitled to the same annual exemption to CGT as an individual - currently £10600 pa. The following is taken off the HMRC website regarding this point and how you can use it to the advantage of the estate:
"If you're acting as an executor or personal representative for a deceased person's estate, you may get the full Annual Exempt Amount during the ‘administration period’. The administration period is usually the time it takes to settle the deceased person’s affairs and get a grant of probate. You're entitled to the Annual Exempt Amount for the tax year in which the death occurred and the following two tax years. After that there's no tax-free allowance against gains during the administration period."
So you may feel that you can allow this to continue for some time without incurring a CGT liability to the estate.
However from a purely practice point of view, I would draw up a legal agreement with your sister to cover the maximum time they can stay in there. As you know, you are under no legal obligation to allow them to stay there - for free or even if they paid rent into the estate.
The first point to make, of course, is that capital gains tax is only ever paid on the difference between what the property was worth on death (i.e. the value that you decide to put on the probate application) iand its final selling price less selling expenses (estate agent, conveyancer etc) - and at the moment house prices are not increasing across most parts of the country.
The second point is that the estate of your father is entitled to the same annual exemption to CGT as an individual - currently £10600 pa. The following is taken off the HMRC website regarding this point and how you can use it to the advantage of the estate:
"If you're acting as an executor or personal representative for a deceased person's estate, you may get the full Annual Exempt Amount during the ‘administration period’. The administration period is usually the time it takes to settle the deceased person’s affairs and get a grant of probate. You're entitled to the Annual Exempt Amount for the tax year in which the death occurred and the following two tax years. After that there's no tax-free allowance against gains during the administration period."
So you may feel that you can allow this to continue for some time without incurring a CGT liability to the estate.
However from a purely practice point of view, I would draw up a legal agreement with your sister to cover the maximum time they can stay in there. As you know, you are under no legal obligation to allow them to stay there - for free or even if they paid rent into the estate.
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