Do I Need to Pay Capital Gains Tax during Probate?
11 June 2018
By Probate Solicitor Stephen Carruthers
The sale of some assets during Probate may be liable for Capital Gains Tax. The deceased person's annual tax allowance of £11,700 can be used to reduce the tax liability during the tax year leading up to their death and for the following two years.
For property that is being transferred straight to a Beneficiary, Capital Gains Tax will not usually be payable. If the Beneficiary then sells the property on, it may become liable for Capital Gains Tax at that point.
What is Capital Gains Tax?
Capital Gains Tax is a tax that sometimes needs to be paid when significant assets are sold (or deemed to have been sold). Capital Gains Tax will be charged on any profit that has been earned on the asset (so the difference between the purchase price and the sale price.)
Individuals and Estates are entitled to a tax-free annual exemption for Capital Gains Tax. In the 2018-19 tax year the allowance for individuals and Estates has been set at £11,700.
This means that if an asset was sold on behalf of an Estate during the 2018-19 tax year, earning a profit of £10,000, no Capital Gains Tax would be payable on this. If a further asset was sold in the same year which earned a profit of £4,000, then the £2,300 that falls above the annual threshold may be liable for Capital Gains Tax.
Someone who is administering the Estate of a deceased person (known as a Personal Representative) would be subject to a Capital Gains Tax rate of 28% on gains from residential property sales and 20% on gains from the sale of any other assets. This tax would be payable by the Estate, not by the Personal Representative themself. This rate is the same as the rate applied to higher rate income tax payers.
The rates for individuals who are on the basic rate income tax is 18% on residential property and 10% on other gains. It is important to note that as an individual you are not usually subject to Capital Gains Tax on the sale of your main home.
When Capital Gains Tax Applies During Probate
There are two circumstances where Personal Representatives need to consider the Capital Gains Tax implications of a transaction.
Capital Gains Tax in the Year of Death
A Capital Gain may occur where a deceased person sold assets (for example, a second home) in the tax year leading up to the date of their death. It is the Personal Representative's responsibility to account to HM Revenue & Customs for any such gains from the sale of assets.
As noted above, a Personal Representative may take advantage of any of the deceased's unused annual exemption for that tax year.
Capital Gains Tax during the Administration of an Estate
For assets that have been sold during the administration of the Estate, the deemed purchase price for Capital Gains Tax purposes is the value that the asset held at the date of the owner's death. This would then be deducted from the sale price to calculate the profit and establish whether Capital Gains Tax is due.
Note, for Capital Gains Tax purposes during Estate administration, Personal Representatives are only entitled to take advantage of the individual's annual exemption for the year of their death and the following two tax years.
If an asset, such as a property, is transferred to a Beneficiary of the Estate then no Capital Gains Tax will be payable on this. However, if the Beneficiary then sells the property and makes a profit on this then they may become liable to pay Capital Gains Tax at this point. This would be payable by the Beneficiary themself, not by the Estate. In this instance, the profit would be calculated by deducting the date of death value of the property from the sale price.
With our Probate Complete Service we take full responsibility for getting Grant of Probate and dealing with the Legal, Tax (excluding VAT), Property and Estate Administration affairs*.
*We can also pay all the costs of a Co-op Funeralcare funeral, providing the Estate owns sufficient assets which can be sold in due course to repay our costs.
Co-op Legal Services is the largest provider of Probate and Estate Administration services in England and Wales, trusted to deal with over £1.3 billion in Estates annually.