UK Inheritance + Capital Gains

[RobertA]

Morning Folks,

My other half inherited her late fathers property a couple of years ago. It was valued at probate for around £500.000 and the appropriate inheritance tax was paid at the time, however she held onto the property.

Last year she finally sold the property, and thanks to London house prices it'd increased in value to £700,000.

I'm now in the process of helping her file the capital gains forms, however I'm wondering what we're able to realistically include as "Allowable Costs" - the notes discuss it as if it's a standard purchase/sale rather than an inheritance/sale.

I know we're allowed to include the 'Purchase Price' of the property, are we also allowed to include the cost of the Inheritance Tax and associated Probate Legal fees?

Any advice greatly appreciated.

Robert

 

[Becky]

Has the property ever been her main residence? If so there may be reliefs available. In terms of allowable deductions, when you are disposing of an inherited asset you consider the probate value (ie the value at the date of her father's death), not the original cost.

There's a useful tool here which might help you:

https://www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/

 

[RobertA]

Thanks for the reply Becky, I really appreciate it.

So this was her childhood home, and she has lived in the property since inheriting it, although only for short periods, with letting inbetween. Looking at the link it seems she is allowed to claim partial relief for this, which is great news.

I'm still confused as to whether we're able to claim the inheritance tax as 'allowable costs' or 'losses' though. She inherited the property worth £500k on paper, however after these initial taxes the real cash value was only around £400.

Seems silly that she would pay gains tax on that £100k?

Thanks,

Robert

 

[Becky]

I'm not sure to be honest, IHT and CGT are not my field, but I don't think you can. With an inherited asset you are getting an uplift to the base cost - ie when calculating the gain you use the probate value rather than original cost - which is an obvious benefit, so I doubt you would be allowed to take off the IHT too.

Be careful with principle private residence (PPR) relief too - it must have been her main residence for a period of time during her ownership to benefit from the relief, so she would have had to have moved out of her other home. Evidence of this would be things like bills in her name at that address. Presumably you moved there with her? HMRC are strict on this, so don't take the risk if she doesn't have evidence to back it up. If it was not her PPR then she cannot benefit from PPR or the associated letting relief.

 

[RobertA]

Thanks Becky,

That all makes perfect sense. I'll see paperwork I can bring together to substantiate the relied claim and see where we go from there.

Appreciate the help.