It may well be the children of the deceased who inherit the property and in many instances those people will want to sell the property. In other cases there may be trustees who inherit the property or, where there is a surviving spouse, there may be only a share (say 50%) being inherited by (e.g.) the children.
When a property is sold, capital gains tax must be considered. With inherited property the capital gain arising on sale will generally be the difference between selling price and date of death value (aka probate value). Where those two figures result in a capital gain being realised, would be sellers should take the time to consider who is selling the property and whether the answer is as tax efficient as it could be.
- With a sale during the period of administration of the estate, the persons selling the property are likely to be the executors. Executors can expect to benefit from, at best, a single annual exempt (tax free) allowance £12,300, with any gain over and above that amount taxed at 28%.
- With some simple pre-sale planning, it would be easy for the executors to transfer the property to the persons standing to benefit from it under the will of the deceased. If that is done, each of the beneficiaries will realise a proportion of the gain equal to their ownership share, for example three children inheriting equal shares would realise 1/3 the gain each. This could mean up to 3 annual exempt allowances as well as potentially some of the excess taxed at 18% if the beneficiaries are lower rate tax payers.
- Taking the planning further, there could be scope for married beneficiaries to share their interest in the property with a spouse, making more allowances and lower rate bands potentially available.
- A twist on this concept arises when a beneficiary has been in co-occupation with the deceased, continues in occupation following death and so potentially stands to benefit from principal private residence (“PPR”) relief on the gain. The test as to whether and to what extent PPR is available is different for individuals, executors, and trustees. In some cases, a simple process of transfer ahead of sale could move from a position where relief is unavailable into a position where it is partly or wholly available.
Regardless of who makes the sale, once CGT is being considered it is necessary to think about the 60 day reporting requirements relating to UK residential property. UK non tax resident sellers will be obliged to make a 60 day CGT return whilst UK resident sellers’ obligation will depend on whether or not tax is payable.
Circumstances will vary from family to family but if an inherited property is intended to be sold, taking some advance advice will help ensure unnecessary tax is not suffered by the sellers.
The next step
For more detail on this topic please contact your local UHY adviser through our website.
