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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I was left a property in a will but someone else was allowed

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Hi. I was left a property in a will but someone else was allowed to live in it , or rent it out or sell and invest in more property for his lifetime (he lived in for 1 year). The trustees of the will suggested that maybe we should sell the property and split the proceeds which we agreed to do , with me receiving 54.26% and him the rest. The property sold for £470000.00 in March 2015, estimated to £443000.00 after cost !! To date I have received £180600.00 and the other person £152300.00 as the trustees are holding the rest back until tax office have ok everything.
Just wondered if you could give me a ball park figure on how much capital gains tax I will be required to pay.
Hope thus names sense
Thanks
Alison
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
I am not in the 40% tax bracket .
Expert:  TonyTax replied 1 year ago.
Hi. Can you tell me when the death leading to the trust set up occurred please. Was the trust set up soon afterwards?
Customer: replied 1 year ago.
The death was Feb 2013. As the will is very complex with about 5 other properties which have to be sold to pay out other beneficeries (estimate about 2 million pounds altogether) . The trustees are named in the will (they are also beneficeries !!) it is only the one property that has been sold that concerns me. I deal with the solicitor and he deals with the trustees .
Sorry if this complicated
Customer: replied 1 year ago.
I want to make an offer on a property £175000.00 but want to make sure I can pay any tax due.
Expert:  TonyTax replied 1 year ago.
Thanks.
Was only the one property which appears to have been left to you put into a trust which allowed the "life tenant" to live in it?
Customer: replied 1 year ago.
Yes
Expert:  TonyTax replied 1 year ago.
Thanks.
Leave this with me while I draft my answer. It will take a while as it is complicated.
Customer: replied 1 year ago.
Thanks
Expert:  TonyTax replied 1 year ago.
Hi again.
Before I post my answer, can you tell me what the relationship of the individual who lived in the house was to the deceased and what your relationship the deceased was.
Customer: replied 1 year ago.
She was a friend of my mothers and he was and he was financial advisor and friend to the deceased late husband.
Expert:  TonyTax replied 1 year ago.
Thanks. You should read the notes at section 12.5 and from 12.9 to 12.10 inclusive here: http://www.tolleytaxtutor.co.uk/taxtutor/files/subscriber/personal-tax/uk-trusts-and-estates/lectures/1d12.pdf The point of an interest in possession trust is to defer Inheritance Tax or for assets to skip a generation, in some cases at least. On the death of the life tenant, at least in this case, the trust property is treated as part of their estate for IHT purposes for the reasons given below. The trust was a qualifying interest in possession trust as it was set up after a death via the will. There can be no Inheritance Tax exit charges or charges on the principal as it was an immediate post-death interest. The property was held in an interest in possession trust with the life tenant having the right to live in it for his lifetime or, as you to say, to sell or let it. As it appears to have been the life tenant's main home, there should be no CGT to pay on the disposal of the property as the trustees will claim main residence relief. That won't be the case if the property was not the life tenant's main home. Where part or all of the gain is taxable, the trust will get a CGT exemption for the first £5,500 of gains it made in 2014/15 and pay CGT at 28% on the balance of the gain which will be the difference between its value when it was put into the trust and its net of disposal costs value. If the life tenant revokes their interest which they appear to have done, at least in part, then they would be making a potentially exempt transfer to you, the value of which will remain in their estate for seven years. After seven years, it will fall out of their estate and escape IHT. Should they die within seven years, then IHT may be payable by their estate or by you if their estate cannot fund the IHT on the gift to you. The only tax charge I can possibly see happening is an Inheritance Tax charge if the life tenant dies within seven years of the capital; gift to you. The most that can be is 40% but the IHT on lifetime gifts tapers away gradually between three and seven years after the gift as you will see at the link below. In addition, where the donor dies within seven years of making a gift, the nil-rate IHT band of £325,000 is first used against gifts made in the seven years before death in chronological order. http://taxaid.org.uk/guides/information/other-taxes-you-may-need-to-know-about/inheritance-tax/828-2/taper-relief-for-lifetime-gifts If the donor is not elderly, it might be possible to take out a term assurance policy with reducing life cover to pay the potential IHT liability. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Thank you so much for your help
Expert:  TonyTax replied 1 year ago.
Thanks.
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