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Following my mum's recent death, me and my brothers stand to inherit our parents' estate (a small amount of savings from a pension they never got to enjoy 🙁 and the house).
In total value it comes to less than the inheritance tax lever (£325k I believe). All proceeds will be split three equal ways and my younger brother is thinking about staying at the house (he was living with mum when she died) and buying the other two shares from me and my other brother. But at the moment he isn't sure whether he ewants to stay or not so I assume the title of the house will pass to the three of us in the meantime.
Is there any kind of tax implications if we inherit the estate then subsequently sell (I am thinking about capital gains tax).
At the moment I am just trying to understand what happens as our uncle is the executor of the will so the solicitor will only speak to him and he is a bit old and doddery so we aren't getting much from him.
I know it might sound a bit odd to be talking about this kind of shit right now, but it is how I am dealing with what is going on 🙁
I'd have thought there could be CGT implications if you profit on (a percentage ownership of) a house that is not your home, I'd google CGT. I think (i) there's be a tax-free threshold and (ii) there's an exemption for property in the first 2 years of ownership? You'd need to profit on the value of the holding between the 2 transfers.
Oh and sorry for your loss.
Capital gains is a tax in the rise in value over time so not something to worry about in the short term.
Fair enough uwe - but is there any other way the Government would want to tax us? I just don't want to be in a position where we have to pay tax just because of the sequence in which we might end up doing things. For example, if the deeds are transferred to us and my brother stays in the house for several years before he decides what to do, would there be any implications? We wouldn't charge him rent or anything and he is free to stay there as long as he wants (I am not going to kick him out or anything) but I would hate this to have a negative effect on me in tax terms just for the sake of not doing something in a different (and tax efficient) way whilst all the paperwork is being done by the solicitor.
Sorry for your bereavement, i have been there.
Just be aware of solicitors fees, then there is probate, also if your parents had any money in any account with santander, expect a huge fight to get the money out, i did.
Also keep a record of all phone calls to the solicitor and ask for written confirmation, but he may well charge for this.
Alos just beaware that money has a strange effect on families, and its relly upsetting for all concerned , ive seen it in my family and in others.
Best wishes.
I think any increase in value between tras=nsfer to you/brothers adn trasnfer from you is chargeable, but there's an allowance at least, and there may be no increase in the period in question.
I'd speak to an accountant if you can't work it out, shouldn't cost a great deal.
Thanks - I am pretty sure there won't be a fight over money as there are just the three of us who stand to inherit the estate and we are very close (especially me and my younger brother).
Am aware there will be solicitors costs, funeral costs etc 🙁 What is this 'probate' you speak of?
Probate,
http://www.direct.gov.uk/en/Governmentcitizensandrights/Death/Preparation/DG_10029799
We had to attend an interview, swear on a bible, and sign a few forms as well as paying about a hundred quid, to get a certificate of Probate,the solicitor/executor of the will may do this for you, but me and mu brother had to both go to the registrars ofice,
Theres info on the above linky about inheritance tax etc.
Essentially there are two stages in the process. Upon someone's death their assets will become part of their estate which until probate is a separate taxpayer. The estate is administered by the executors of the will (normally with the help of a solicitor). The estate on grant of probate is transferred to the beneficiaries of the estate. Typically this will all be done over a short period so no significant tax liabilities will arise. In your case, you could be transferred a share in the house on probate if it has not been sold or alternatively your brother could purchase it from the estate and you would receive a share of the proceeds. If the former, you will potentially face a cgt bill if the value of the house rises between probate and when your brother makes his mind up. However you will have an annual exemption of approx £10K so it would need to rise in value by 10% for this to be an issue.
If your father died after 2007 you should be entitled to an inheritance tax exemption of £650K in which case it makes sense to put as high a value on the house as you can as you are not going to be paying inheritance tax. Then when you sell it any gain will be calculated by reference to this higher value.
Don't rely on this - get some advice, it is standard stuff.
That last part is particularly interesting as dad died in 2009 (a pretty crap last 2.5 years all in).
The tax position is fairly clear on this -
The value of the property crystallises on the date of your mum's death for Inheritance tax purposes - as the estate is likely to be below the inheritance tax threshold tax payable will be nil.
At any subsequent disposal of the property you will be liable for capital gains tax on the difference between the price that you sell for and the value that you inherited at.
So say you inherit at £200K value and Sell for £220K - capital gain is £20K. Your share is a third £6,666 which is your personal capital gain. This is less than your capital gains allowance for the year and the tax payable is again nil.
Capital gains above the yearly allowance are taxed at 18%.
If you need help with probate drop me a line e-mail in profile. It is what I do for a living.
Nick.
That's very clear - thanks for that - so I really don't need to worry about how things are sorted and just let little bruv stay there without the worry of a tax bill at some point in the future when we do sell (assuming of course it doesn't sky-rocket in value, which it won't do).
f your father died after 2007 you should be entitled to an inheritance tax exemption of £650K in which case it makes sense to put as high a value on the house as you can as you are not going to be paying inheritance tax.
Almost but not quite. The date of the first death does not matter 2007 was when Transferable Nil Rate Band was introduced. So as long as the 2nd spouse died after this date all estates are able to claim it. What matters is how much of your father's nil rate band was used at his death. If everything transferred to your mother then the answer is none and you will be entitled to claim for a Transferable Nil Rate Band, but if there were other gifts and disposals from his estate on his death then the entire NRB will no longer be available for transfer.
It all depends on the individual circumstances, it is something you have to claim not something you get as a matter of course.
If the estate is between £325k and £650k it is well worth seeking some advice.
You don't need to worry too much but you will have to go through the probate process within a year of her death.
This doesn't mean that you have to sell up or throw your brother out - just a formal process by which the ownership of the estate transfers from one generation to the next.
Thanks for all your help and advice - it seems I don't need to worry about it then (and the whole estate will be worth less than £325k so I don't need to be worrying about that).
Now I can concentrate my mind on other things I don't really want to have to concentrate on 🙁
I wouldn't know the answer without looking it up but could there be stamp duty implications for your younger brother on subsequently buying the two shares off you and your brother?
Hmm good point - unless he 'gives' us the money (he is in a fortunate position in having a large amount of savings) and we 'give' him our shares in the house.