Inheritance Tax

[Busby15]

My Mother has just died and left her house to me and my brother. If we decide to sell it, will we have to pay any tax? Ie capital gains or inheritance?

[jake-the-peg]

You have to pay inheritance tax on the whole estate before you get anything from it if the value is over £325,000

Before you can inherit anything there must be a valuation of the estate and any tax paid

Then and only then will a grant of probate be issued so that you can claim your inheritance

[FredPuli43]

No capital gains on it for the estate itself, only inheritance tax. The value is decided by agreement with the revenue as at date of death. When the house is vested in you and you sell it at a profit on the date of death valuation, you then become liable for taxation on the capital gain on the sale.. You may opt to pay the inheritance tax on a house or land in 10 yearly instalments but that arrangement ends when the house or land is sold by you; then the balance of the unpaid IHT is payable forthwith

[jake-the-peg]

This is the form that you'll most probably need to complete

http://www.hmrc.gov.uk/cto/forms/iht205-2006-2.pdf

[EdmundD]

Inheritance Tax threshold is £650,000 in total., so your personal threshold is £325,00. You need a professional valuation of the property. Also the taxman will take into account your share of any other assets you inherit - cash, bank accounts, car, etc. So your calculation is does your half of the property value plus any other share of assets keep you below the threshold or not.

[FredPuli43]

Edmund, I don't quite understand your figure of £625,000.The threshold is normally £325,000 on an estate. It sounds as though you are saying that if someone leaves their estate to two people equally, rather than one person alone, the threshold is double what it would have been if they'd left the whole estate to one person

[FredPuli43]

^ £650, 000 not '£625,000' !

[Busby15]

I assumed the inheritance tax would be £650,000 as we are allowed to use my deceased father's nil rated allowance , he died in 2002. The total assets come to below the threshold but haven't heard back from the probate office yet. They cashed the cheque but no acknowledgement. Will it take long?

[EdmundD]

Sorry, perhaps I was typing before I was thinking!! You are right the threshold for IHT per person is currently £325,000. However if the professional valuation of the property plus the value of inherited assets exceeds a total £650,000 then sharing that valuation 50/50 could give rise to an IHT liability.

[Peter Pedant]

we're sorta edging there.

It depends whether any of your late fathers zero band was used and that depends on his will.

I cant remember how long an application for probate takes
They are certainly not on steroids....

The date of death is a big thing

My dear lady mother died 24 Jan 1994 and that for stock-pickers marked almost the stock market peak. And you will not be surprised that there are transitional rules for when the market falls between death and probate.

If you sell her stocks in ten years then you will have CGT to pay on the stocks with the base the day of her death

Dont forget there is four months of income tax for her estate to pay.

straightforward really

Buy a daily paper nearest her death for the stock market prices

[jake-the-peg]

I'm going through this at the moment with my father's estate

The site says 2-3 weeks for probate but talking to the banks they say it seems to take a couple of months

Probably varies depending where you are in the country

[FredPuli43]

How long is a piece of red tape? How long it takes to get probate depends on a number of things: how much and what kinds of property, the deceased had (mostly delay through agreeing valuations and reliefs), how complicated the estate is (trusts involved etc) and, above all , the snail's pace at which the Office operates. You can generally agree a working liability and then pay that and leave the arguments about what else is or isn't payable to later; gifts in lifetime can involve a lot of discussion, as can strange things like whether a house is eligible for relief as the home of a deceased working farmer, but all for later.

I'd say it's 3 to 4 months in a fairly straightforward case, allowing for the snail. Of course, that may not be everything, but it gets probate. After that , to wind up the estate fully may take a month, or, in in the estate of my late mother (not that unusual, but full of tax arguments), 4 years !

[Peter Pedant]

Freddie - and you're a lawyer !

Long piece in Miscellany by Megarry on how many Lords Chancellors wrote invalid wills or died intestate. and a few I regret were mad, quite mad

Re Ellenboroughs Wills is a precedent isnt it ? or did I gorge myself on easements and misread it for Ellenborough Park ?

[buildersmate]

A capital gains liability will exist to both you and your brother if the eventual sale price of the house (less dispersements, including estate agents) exceeds the valaution of the property when transferred to you (i.e. the probate valuation). Of course Busby and brother can each offset their personal annual CGT allowance, of around £10k each, but it is not true that there is only a IHT liability to the estate.
This has become relevant again now that house prices are moving back up.
The way to deal with this (if there is adequate headroom in the estate, without incurring an IHT liability) is to arrange an appropriately generous probate valuation.