Capital Gains - Inheritance tax confusion

[BongoHunter]

My dad passed away just before the pandemic, in his will he left me 25% of his house.

My mum is now selling up and down sizing so I would imagine I'll be receiving something in the region of 90K from the sale.

Looking at the guidance on Gov.uk hasn't helped me understand if I'm liable for CGT (sale of a property that's not my primary dwelling) - or if CGT doesn't count as its inheritance and under the inheritance tax threshold. I don't think CGT applies here but if anyone knows better that would be super useful.

I'm assuming this situation isn't unusual so I'm hoping someone here can shed some light on it before I go and speak to an accountant.

Ta

 

[Mr Badger]

I'm not an expert, but assuming that they were married I would say you should be fine. My simplistic understanding:

Unless she owns multiple properties, CGT won't apply if your mother is selling her own home. CGT would only apply to you on any increase in value since the date of your father's death.

Your mother won't have to pay inheritance tax due to her being covered by the spousal allowance.

£90K for 25% suggests the total value of the house is £360K, which is well under the inheritance tax allowance for your father of £500,000 (presuming the total allowance applicable is £325K IHT allowance plus £175K property IHT allowance as you are a child inheriting a share of the family home).

 

[andybird123]

CGT would apply, but not to the total amount you get from the sale, only your "gain" since you inherited it.

Inheritance tax wasn't due when it was handed over to you as it was under the threshold for IHT. It's been yours 4 years? When the will was processed they would have had to value the estate and the house and that value would be the basis of your "cost".

If the gain is more than the CGT threshold then you'd have to register for and pay the CGT, but it sounds like your gain is likely to be less than the threshold.

Tax when you sell property

Capital Gains Tax when you sell a property that's not your home: work out your gain and pay your tax on buy-to-let, business, agricultural and inherited properties

www.gov.uk

Bullet point 4; inherited property

As an example, if your share was valued at £80k when you inherited, and sold now for £90k allowance is £6k, so you'd pay tax on £4k, which at 18% would be £720. (You can also include solicitors fees and estate agents fees in costs but I just made the maths simple). But house prices have been falling depending on where it is so your gain might not be that much.

 

[EvilRob]

Agree w/previous poster except I think the gain is likely to be higher than the CGT allowance because 4 years ago takes us to before the crazy covid house price increases and also the CGT allowance is just about to decrease from 6k to 3k. Probably some CGT due but should be simple enough to work out:
Sold house price - price when you inherited * your share * (18% or 28% depending on whether you are a basic or higher rate tax payer) - your share of cost of sale - 3k CGT allowance.

Costs of sale are usually estate agent selling fees and conveyancing fees.

 

[BongoHunter]

Thanks guys - I'll try and find the house valuation we had done when he passed away.

Makes sense to pay CGT on the differnce in value between the time of inheritance and the price at time of sale.