Do we have to pay capital gains tax on a flat sale?

Question

I recently sold my mother’s flat a year on from her death. Her estate was worth well below the inheritance tax threshold and the proceeds of the sale went to four beneficiaries.

My question is do we have to pay capital gains tax on the proceeds of the flat sale?

MB/Brighton

Answer

When a person dies, there is no capital gains tax to pay on property or assets that are inherited provided those items aren’t sold. If property or assets that are inherited are then sold, and their value has risen since the death, then there is capital gains tax to pay.

The gain is calculated by taking what you sold the item for and deducting what it was worth when she died. Because a year has passed between your mother’s death and you selling her flat there is a good chance the value had increased. This means you have made a capital gain, and you could have to pay tax of up to 28% as a result.

However, everybody gets an annual capital gains allowance worth £11,100 – that is how much you can make in capital gains before tax is due. You can also deduct sale expenses from the capital gain. So, you may not owe the taxman anything depending on your personal circumstances.

 

How to calculate a capital gain on property

Capital gains tax (CGT) is due when you make a profit on the sale of a property that isn’t your primary residence. It can also apply onthe sale of another asset that has increased in value such a business asset or company shares that aren’t held in an Isa)In the cas of property, o work out the profit you need to deduct the price you sold the property for from the price you paid for it. So, if you bought it for £150,000 and sold it for £175,000 you’ve made a £25,000 gain.

You can then deduct any selling expenses and money you’ve spent on improvements from that gain. So, let’s say that adds up to £10,000 that leaves you with a £15,000 gain.

Everyone is granted a £11,100 capital gains tax allowance each tax year. That is how much you can make before CGT is due. In this example, provided you haven’t made any gains elsewhere in the tax year, that leaves you with a taxable gain of £3,900.

 

You pay a higher rate of CGT on gains from residential property than you do on other assets. If you are a basic-rate taxpayer, CGT is levied at 18% on residential properties meaning a bill of £702.

Higher-rate or additional rate taxpayers pay CGT at 28% on residential property, giving you a bill of £1,092. You need to report any Capital Gains Tax you need to pay to HMRC either straight away in the Report Capital Gains Tax online service or annually in a Self Assessment tax return.
 

David Wesley-Yates
David Wesley-Yates is a chartered tax adviser at Red & Black Accountancy.

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Your Comments

When we got married my husband sold his house and moved in my house.  Then a year or so later he bought through probate his grandparents house and we moved into this after renovations.
I had difficulty in selling my house due to the housing market so ended up having to rent out.  All earnings have been declared to HMRC and on my tax return I have commented for the last 3 years that this was my house and was only being rented because I was unable to sell it at present.  I am now expecting to sell this year and need to know if I will have to pay CGT on my old terrace house