Selling a property post-death – Is there a capital gains tax charge?

When a family member dies, it is always heart-breaking. Not only are they dealing with a tidal wave of grief, but they also have plenty of practical issues to attend to, such as selling their relatives property.

A deceased person’s will should specify whom they wish to manage their money and property, collectively referred to as their estate. Executors are responsible for collecting and valuing the assets of the estate, paying any outstanding debts and inheritance tax, and distributing the estate according to the terms of the will. Unless the beneficiaries want that the property be transferred to their names, it needs to be sold.

Numerous estates include a property, whether it is the primary residence or investment property. If these are sold after the borrowers death, the problem of capital gains tax will arise or not should also be examined.

1. Who is the seller?
2. If the property sold by the executor or personal representative
3. Benefit from the main residence exemption/private residence relief
4. If the property sold by the beneficiary
5. Inheritance tax
6. If you’re planning to sell a property

Who is the seller?

When a property that is part of the deceased’s estate is decided to be sold, the outcome varies based on who is selling the property – executors or administrators. Examples include obtaining cash for payment to beneficiaries or determining if the legal title has been transferred to the beneficiary or beneficiaries who have decided to sell the property.

If the property sold by the executor or personal representative

When a property is sold by the executor or personal representative after the death of the decedent, the estate is subject to the capital gains tax. Executors are entitled to exemption of a single yearly amount for dispositions made during the tax year in which the decedent died and the two succeeding tax years. After this, there is no yearly exemption available to offset any capital gain. Any chargeable gain earned on residential property is subject to tax at the higher residential rate of 28% (after deduction of annual exemption amount, if any). Residential property gains must be reported to HMRC within 30 days of completion. Capital gains tax should also be paid concurrently.

Benefit from the main residence exemption/private residence relief

A post-death property disposition by the personal representatives may qualify for the main residence exemption in certain circumstances. This is the situation in which:

1. One or more individuals occupied the property as their sole or primary residence immediately before and after the deceaseds death,
2. The individual or individuals is/are entitled to at least 75% of the net sale proceeds or an interest in possession of at least 75% or more of the net sale proceeds, and
3. One or more individuals qualify to the net sale proceeds of at least 75% or interest in possession of the net sale proceeds of at least 75% or more, and
4. A claim made by a personal representative for the main residence exemption (also known as private residence relief)

If the property sold by the beneficiary

Suppose the beneficiary or beneficiaries acquire legal title to the property after the death of the deceased person. In that case, their base cost for capital gains tax purposes is the market value on the death date. If they later sell the home and it is not their primary residence, they will incur a taxable gain. They will be able to take advantage of their own annual exempt’s amount, as well as any capital losses that are available.The gain will be subject to tax at the applicable residential rate - 18% or 28%. The gain earned must be notified to HMRC within 30 days along with the tax payment.

If the property is occupied as the beneficiarys primary residence following the decedents death, the recipient can take advantage of the main residence exemption at the time of property selling.

Inheritance tax

Depending on the propertys value and the value of your parents other assets, inheritance tax may be due. If an estate exceeds £500,000 and is transferred to the deceased persons children or grandchildren, an inheritance tax of 40% must be paid. If an estate is passed to a spouse or civil partner, there is no inheritance tax to pay. In some cases, this requirement is reduced to £325,000.

If you’re planning to sell a property

If a property is a part of an estate and the decision of selling is final, it is essential for us to evaluate whether the property should be sold by the personal representatives or the beneficiaries, and, if a capital gain is anticipated to be realised, what will deliver the best result.

Conclusion

To summarise, this is a complex area of law that may entail Capital gains tax and the associated reliefs, which may help you reduce your tax liability. It is strongly advised that you seek professional tax guidance to ensure that the correct amount of tax is paid (and not overpaid). dns accountants has significant expertise advising clients on capital gains tax implications when selling property. Kindly contact us if you require tax guidance on capital gains tax and want to avail the eligible tax reliefs.

In case you have any queries or want specialist advice on "Selling a property post-death”, kindly call us on 03330 886 686, or you can also e-mail us at enquiry@dnsaccountants.co.uk.

Disclaimer :- "This article was correct at the date of publication. It is intended for general purposes only and does not constitute legal or professional advice. Independent professional advice should be sought before proceeding with any transaction".

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.