Inheritance tax

[cosmic gateway]

Can any one tell me is it correct that if you live in an inherited property for over two years you dont have to pay inheritance tax if you sell it, very confussed about the rules on IT

[honeybee13]

Hello there.

 

I'll move this to the HMRC forum and also see if I can find anything online. I think I'm right in saying [not sure] that if the value of the house goes up while you live there you might be liable for capital gains tax, but maybe you could tell us a bit more about the situation please?

 

My best, HB

[cosmic gateway]

my dad has left me a house he bought many many years ago, it is in a very beautiful spot and has been valued as a house for IT purposes. I was told by a friend if I live in the house for two years I only pay the IT on the current valuation then after two years if it goes up in value I dont have to pay IT on the increase in value when I sell it. The problem is IT value the House and I pay the IT, but the plot the house is on will be worth more than the house so I would sell it as a plot not a house. I have chronic arthritis so I am trying to get as much financial support for myself for the future. We are basically ordinary hard working people it is just that my dad bought this house many moons ago and the area is now very sought after. I know I have to pay IT, before the house belongs to me, but once mine what do I do about the increase in value if sold as a plot not a house. Do I pay more IT on it or capital gains so confussed need help. And how long do you live in it to just pay capital gains if it is my main home.

[honeybee13]

Hello again and thank you for the extra details.

 

It might be easier to take this in stages if that's OK with you.

 

Am I right in saying that your Dad has left you the whole of the house? Did he leave anything else in his will and what was the value of his estate? Are there any other beneficiaries apart from you?

 

HB

[cosmic gateway]

no just me total value of estate 1 mil, house valued at 950k the rest was his savings. Crazy house prices, but we all know that.

[cosmic gateway]

Oh sorry needed to say my house is rented so can give it up and go live in dads, would have no rent to pay then, but dont want to stay their too long as it is a long way from friends and support

[honeybee13]

So do you need to pay IHT over the amount of the nil rate threshold? I need to look that up, over the threshold is normally at 40% from memory.

 

Is there a will?

 

HB

[honeybee13]

The threshold for the current tax year is 2012. When did you lose your Dad, please?

 

HB

[cosmic gateway]

I am told I pay IT over 650k as got dads allowance 325k and carry mums 325k on as he never used mums when she died so 40% over 650k so 40% on 350k to pay ?? am I right?

[cosmic gateway]

lost dad this May and yes their is a will leaving all to me only child.

[honeybee13]

Yes, I would say that probably is right. I was going to ask next if your Mum's allowance has been used. Was it definitely £325k? I can't remember if you need to use a historic figure.

 

Are you saying you disagree with paying the tax over and above the £650k figure?

 

HB

[cosmic gateway]

No got no problem with the tax at all and it will be paid what I was told was if I live in the house for two years after probate being settled, I dont have to pay IT on the increase in value if I sell it as a plot, want to know if that is correct and do I then pay capital gains when it is sold as it would have been my only home for two years, as I would give up my rented home, and you dont pay capital gains on your only home do you when you sell it ??

[honeybee13]

I'm not sure what you're asking, but my understanding of IHT [inheritance tax] is that once it's paid, it can't be charged again.

 

After that, if you don't live in the house I think that CGT [capital gains] could be due, but my knowledge is rusty.

 

Yes, I understood that CGT is not due on the increase in value of your principal residence.

 

HB

[honeybee13]

This is what the HMRC website says about selling a principal residence. I'm not sure what your 2 year figure refers to, can you elaborate please?

 

What is Private Residence Relief?

 

When you sell or dispose of your own home you won't have to pay any Capital Gains Tax if you satisfy two conditions. For the whole time you've owned it both the following must apply:

 

• it's been your only home or main residence
  
• you have used it as your home and nothing else
  

You may qualify for this relief if you sell part of the garden without selling your home at the same time.

[cosmic gateway]

Yes thats my problem some people say IT cant be charged again and others say if the house increases in value when you sell it and you have settled probate the inland revenue can come back to you for more. i.e the increase. All I want to do is get myself a bungalow and im so confussed about IT and what they can or cant do.

[honeybee13]

Hello again.

 

As I said, my understanding is that IHT [iT to me is income tax] is only paid once. I thought any increase would be subject to CGT if it wasn't your main home, or possibly for the parts of the time you owned it when it wasn't your principal residence.

 

I believe that once you become the owner of the house, no more IHT is due, any tax that might be payable would be based on your own tax situation.

 

Have you read the HMRC website? It has all the information you might need if you take the time to look.

 

I've also tried to find some help for you from someone who may know about tax. Who has given you advice so far please?

 

HB

[cosmic gateway]

To be honest I have only read a little of the HMRC website a little lost at the moment, dads was a very long illness so having this on top not thinking at my best Reagrds

[James67]

I am told I pay IT over 650k as got dads allowance 325k and carry mums 325k on as he never used mums when she died so 40% over 650k so 40% on 350k to pay ?? am I right?

 

Your correct to an extent but depends on when your mother died...

 

The thresholdcan only be transferred on the second death, which must have occurred on orafter 9 October 2007 when the rules changed. It doesn’t matter when the firstspouse or civil partner died, although if it was before 1975 the full nil rateband may not be available to transfer, as the amount of spouse exemption was limitedthen. There are some situations when the threshold can’t be transferred butthese are quite rare.

great guide to IHT.. http://www.pocockrutherford.com/pdf/guide/IHT2011.pdf

[cosmic gateway]

Hi mum died in 1985 and dad used nothing of her allowance. Regards Cosmic

[cosmic gateway]

Sorry 1995 silly me

[James67]

you're within the limits then.

[cosmic gateway]

One other point not clear on is CG/ CT I am going to buy a little bungalow where I live. I have read the IR helpsheet on CG and I will move my main residance relief to my dads as they suggest it is placed on the property that is worth the most. I know I will pay capital gains on the bungalow Im going to buy untill my other house is sold (dads home ) and I then move my relief to my bungalow, do I pay council tax for both houses untill dads is sold ?. Regards Cosmic

[cosmic gateway]

Thanks James some good news Regards Cosmic

[honeybee13]

do I pay council tax for both houses untill dads is sold ?.

 

I believe there can be exemptions for empty properties subject to certain conditions. The CAB website seems to have some good information.

 

HB

[James67]

One other point not clear on is CG/ CT I am going to buy a little bungalow where I live. I have read the IR helpsheet on CG and I will move my main residance relief to my dads as they suggest it is placed on the property that is worth the most. I know I will pay capital gains on the bungalow Im going to buy untill my other house is sold (dads home ) and I then move my relief to my bungalow, do I pay council tax for both houses untill dads is sold ?. Regards Cosmic

 

Council tax is usally paid on all properties. however, discounts and exemptions do apply.

 

Firstly,

You may pay less Council Tax if you own or rent a property that isn’t the home where you usually live.

Some councils give furnished second homes or holiday homes a discount of between 10 and 50 per cent.

 

Alternatively,

You may pay less Council Tax if you own an empty property where no one lives.

Homes that have been empty and unfurnished for longer than six months may get an empty homes discount of up to 50 per cent.

 

Find out which councils give discounts here

Edited May 17, 2012 by James67
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