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We are Executors of my Mothers Will. She died some years ago

We are Executors of my...
We are Executors of my Mother's Will. She died some years ago but we could not sell the property because of a proviso in the Will allowing an elderly person to live there rent free until their death. We are now able, and are selling the property and therefore be liable to Capital Gains Tax. There are Seven Beneficiaries which include the two Executors. When and how do we advise HMRC and when do we pay the CGT?

Denzil
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7/28/2013
Tony Tax
Tony Tax, Tax Consultant
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Hi.

Can you tell me the exact date that your mother died please. Has the property been put into the names of the beneficiaries?
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Customer reply replied 4 years ago

My Mother died in 1998. The property has not been put in the names of the Benfeciaries

Thanks.

Leavre this with me for a bit while I draft my answer. There is more to it than Capital Gains Tax.
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I'm back.

Your late mother's will effectively set up an interest in possession trust which allowed the elderly relative to live in the property rent free until their death when the property passes to the ultimate beneficiaries of the will. When the life tenant passed away, the value of the property at that time should have been included in their estate for Inheritance Tax purpose. Since the trust was set up before 22 March 2006, the old rules apply and there are no 10 year IHT charges or IHT exit charges fortunately. There may or may not be any IHT to pay depending on the value of the deceased life tenant's estate including the value of the property. Take a look here, here and here for more on interest in possession trusts.

As the interest in possession came to an end, there should be no Capital Gains Tax to pay as you will read in the second link I gave you. The beneficiaries each inherit a proportion of the house with the market value at the time the life tenant passed away becoming the base cost for CGT purposes. So, if the property is sold for a sum close to the value at the time the life tenant passed away, there can be no CGT for the beneficiaries.

It would be better for the property to be transferred out of the trust before contracts are exchanged on the sale, the date of such exchange being the tax point for CGT purposes. That way, the trust is not selling the property. However, a note drawn up by the Executors stating that the property is being sold on behalf of the beneficiaries of your late mother's will should satisfy the tax office if they ask about the transaction. Sometimes. it can be costly and time consuming to change the names on the deeds of a property which is being sold in any event but the belt and braces approach would be to sell the property outside the trust.

I hope this helps but let me know if you have any further questions.
Tony Tax
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Customer reply replied 4 years ago

Hello


 


One point, the person living in the property until their death was a "Licence" and not a Life Tenant. Does this make a difference?


Denzil

Can you tell me what the terms of the "licence" were please.
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Customer reply replied 4 years ago

Hello again


 


The person whom my late Mother allowed to stay in the house after her death claimed that the property was theirs. We took the person to Court.


The Court allowed the person to reside at the property "until his death as a bare Licencee and the property will remain in its entirety as an asset of the Estate until so;d by the Executors of the Estate upon determination of the Licence " provided that he admits to no beneficial interest in the property, allow no other person to reside in the property, to allow access to the property the Executors and Beneficiaries, pay for the day to day running expenses including utilities.


The agreement was not intended to create a relationship of landlord and tenant and the person was not entitled to an assured tenancythe Housing Act 1988 or any other statutory security of tenure now or upon the determination of the Licence. This was a precis of the Court Order.


Denzil


 

Thanks.

I think you need to refer back to what the will said. If your mother's will gave the elderly relative the right to live in the property until they died, then that is an interest in possession trust and you can ignore what followed as far as tax is concerned. All the court decided was that the relative could not sell the property. I'm happy with my earlier answer.
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