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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15950
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I inherited a property from my father. I varied the will, through

Customer Question

I inherited a property from my father. I varied the will, through solicitors, so my daughter, son and myself all shared in equal parts. I did not change the deeds at land registry the property is still in my fathers name. The property was rented for two years and has been my son's home for the last year. We now want to sell the property and I thought that as it was in our three names, through the variation, we could use our three CGT allowances. In fact my son having lived there would not pay CGT. The solicitor acting for us, the house is now under offer, said it would be still counted as my property as the deeds were never changed. I thought because of the variation HMRC would consider us all to own it. To change it now with land registry would only be just before the sale. So am I, on my own, liable for all CGT? Increase in value is £150,000 partly because of the refurbishment I carried out.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

If the property is still in your father's name and it is sold whilst it is still in your father's name, then HMRC may well argue that the property has been sold by the deceased estate and will, therefore, qualify for only one CGT exemption. In fact, a deceased estate is only entitled to a CGT exemption for the period from death to the next 5 April and for each of the next two tax years. See page 4 of HS282 here.

Give how long has passed since your father's passing the property should have been taken out of the estate by now and your solicitor should get that done as soon as possible.

I have heard of cases where a document has been drawn up and signed by the executor which states that the property is being sold on behalf of the beneficiaries without being put into their names and that HMRC have accepted such an arrangement but I'd prefer to get the property out of the estate before it is sold.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Thanks for reply.

So if I go ahead now and change the deeds at land registry to us three, even though it may only be a few weeks before the sale goes through, HMRC will accept that and allow us to use all our CGT allowances. The solicitor felt that HMRC might ignore the will variation and only take into account the date of change of names at land registry which will be very close to the sale of property.

Expert:  TonyTax replied 2 years ago.
There can only be four names on the title deeds of a property so where there are more than four owners, lawyers draw up a deed of trust to clarify the ownership. I realise there are only three owners in your case but a deed of trust may get around the problem.
Customer: replied 2 years ago.

Can you clarify you said that the property should be 'taken out of the estate' and get the solicitor to do that as soon as possible. What do you mean by that. Changing the name on the deeds or drawing up a deed of trust or both? Would HMRC accept either of those as proof all three of us have ownership.

Expert:  TonyTax replied 2 years ago.

When you inherit an asset such as a property, the ownership starts on the death of the deceased person whom left it to you.

It is beneficial ownership which counts for CGT purposes not necessarily legal ownership as the title deeds tell you. Take a look at the notes here.

In your case, it is clear that the intention of the will as varied was to split ownership of the property three ways. If you cannot get the names on the deeds quickly enough then a deed of trust should suffice.

Customer: replied 2 years ago.

Thanks for your help.

It seems then that I will ask the solicitor how quickly we can get the names changed on the deeds. If it will take too long (an offer has only just been accepted so completion will not be for 10/12 weeks yet) then we will draw up a deed of trust.

I feel a bit more hopeful now that matters will be sorted out as I intended when I made the variation to the will.

Expert:  TonyTax replied 2 years ago.
I would have thought that the deeds could be amended in the time scale you mention. Good luck.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Just one more thought. If I change deeds before sale into three names I did say on the variation equal shares. Is there a way that my daughter and I could pass some of our share to my son as he has lived there for over a year and will be not be paying CGT on his share. It would then lessen our CGT. Would HMRC frown upon that.

Expert:  TonyTax replied 2 years ago.

You had two years to vary your late father's will after his death. You could have varied the shares of property as part of that.

If you and your daughter pas some of your respective shares of the property to your son, that will be treated as a gift for Inheritance Tax purposes and a disposal for Capital Gains Tax purposes by each of you so there may be little to gain by doing that.

If the intention is to have the division put back to what it was after the variation, ie equal, once the tax is settled, then HMRC may not like that and effectively treat it as if it didn't happen and tax you on equal shares of the gain subject to main residence relief for your son.

Customer: replied 2 years ago.

Thanks for reply.

Since I varied the will my son's circumstances have changed and he has had to live in the property. As he can claim main residence relief we realized it would have been better if he had had a larger share to save myself and my daughter some tax.

Actually the intention is not to put the division back to what it was after the variation as once I have paid my CGT I am giving him half my share.

Expert:  TonyTax replied 2 years ago.

You and your daughter can make gifts of parts of your respective shares in the property to your son but as I said in my previous post, they will be disposals for CGT purposes at the current market value of the proportions gifted as well as potentially exempt transfers for Inheritance Tax purposes. That's assuming you get the property out of the estate before it is sold.