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ISAs Inheritace tax , capital gains
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How are ISAs treated for inheritance tax and capital gains ?
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For more on marking an answer as the "Best Answer", please visit our FAQ.Modeller. There's a couple of things you need to understand here if you are acting as an executor.
The assets are valued at the date of death for the purposes of IHT. That much is really simple.
However, the CGT issue with regard to the estate after the date of death is a whole different ball-game. If the underlying assets in the estate increase in value after death, then CGT may well be payable by the estate. The gain is assessed as the difference between the eventual sale price of the asset, less its value at probate. This is true of all investment assets AND the deceased former principal private residence (since exemption of tax on any CG on this asset is lost on the death of the homeowner). HOWEVER the estate is entitled to the normal CGT annual allowances before tax is payable - so the timing of assets sale by the exceutor in a rising investment market can seriously impact the CGT liability.
There is yet more complexity. If a deceased asset is not sold but TRANFERRED as part of a legacy in the will to an individual (applies to both shares, property etc.), no CG is regarded as having been made - even if the underlying asset has increased in value between the date of death and the date of actual transfer. Instead the receiver of the legacy asset is liable for any CGT due when THAT PERSON eventually disposes of the asset - possibly years later in the case of a family home.
This is a complex area, and to get it right (aka. tax efficient) one may need to take professional advice.
The assets are valued at the date of death for the purposes of IHT. That much is really simple.
However, the CGT issue with regard to the estate after the date of death is a whole different ball-game. If the underlying assets in the estate increase in value after death, then CGT may well be payable by the estate. The gain is assessed as the difference between the eventual sale price of the asset, less its value at probate. This is true of all investment assets AND the deceased former principal private residence (since exemption of tax on any CG on this asset is lost on the death of the homeowner). HOWEVER the estate is entitled to the normal CGT annual allowances before tax is payable - so the timing of assets sale by the exceutor in a rising investment market can seriously impact the CGT liability.
There is yet more complexity. If a deceased asset is not sold but TRANFERRED as part of a legacy in the will to an individual (applies to both shares, property etc.), no CG is regarded as having been made - even if the underlying asset has increased in value between the date of death and the date of actual transfer. Instead the receiver of the legacy asset is liable for any CGT due when THAT PERSON eventually disposes of the asset - possibly years later in the case of a family home.
This is a complex area, and to get it right (aka. tax efficient) one may need to take professional advice.
No - what I was trying to say that there is no CGT payable on death - IHT replaces it.
That is on death you don't have to work out when and at what cost the deceased acquired assets and possibly pay CGT. You 'just' have to pay IHT relevant to their value at death. Less NRB of course.
After death CGT kicks in where relevant.
Perhaps I was trying to express things too concisely
That is on death you don't have to work out when and at what cost the deceased acquired assets and possibly pay CGT. You 'just' have to pay IHT relevant to their value at death. Less NRB of course.
After death CGT kicks in where relevant.
Perhaps I was trying to express things too concisely
Ditto.
The whole CGT scenario occurs (if at all) on any uplift on values in assets from the probate values - we are clearly saying the same thing.
Accept my explanation was perhaps not the most elegant on this.
Just trying to say that there are ways and means of an executor minimising CGT by:
a) managing the timing of the disposal (sale) of an asset
b) managing the decision whether to sell an asset on the open market or transfer it as a legacy - for the receiver to determine what to do with it.
c) utilising the estate's annual CGT allowance
Is that better?
The whole CGT scenario occurs (if at all) on any uplift on values in assets from the probate values - we are clearly saying the same thing.
Accept my explanation was perhaps not the most elegant on this.
Just trying to say that there are ways and means of an executor minimising CGT by:
a) managing the timing of the disposal (sale) of an asset
b) managing the decision whether to sell an asset on the open market or transfer it as a legacy - for the receiver to determine what to do with it.
c) utilising the estate's annual CGT allowance
Is that better?
Now let me be a bit mor specific so you can see where I am coming from.
A father and son own a house jointly for a period of 12 years. The father has lived there but the son lives elsewhere ( he has his own house ) , the father dies and the son inherits the fathers half of the house. What will be the son's tax situation e.g. CGT at the time of the father's death or later if and when the property was sold ?
A father and son own a house jointly for a period of 12 years. The father has lived there but the son lives elsewhere ( he has his own house ) , the father dies and the son inherits the fathers half of the house. What will be the son's tax situation e.g. CGT at the time of the father's death or later if and when the property was sold ?
Tha allowance is that applicable in the tax year that the gain is realised. Ie just one allowance.
In your example:
there might be IHT on the father's share of the house based on its value at the time of death
there might be CGT on the father's share of the house if it rose sufficiently in value between death and sale, based on that increase in value
On the son's share of the house - no IHT. CGT calculated at the time of sale based on the original acquisition value* and the sale value, less any allowances
* I think that if the property has been owned since before 1982, it's the value in 1982 that counts. Not 100% sure on this though - it used to be the case but may have changed
In your example:
there might be IHT on the father's share of the house based on its value at the time of death
there might be CGT on the father's share of the house if it rose sufficiently in value between death and sale, based on that increase in value
On the son's share of the house - no IHT. CGT calculated at the time of sale based on the original acquisition value* and the sale value, less any allowances
* I think that if the property has been owned since before 1982, it's the value in 1982 that counts. Not 100% sure on this though - it used to be the case but may have changed
Father gets Principal Private Residence relief on his half. Son doesn't - he says another house he lives in.
Father's estate gets assessed for IHT following death - subject to the nil-rate band exemption.
Son gets the house - no CGT to pay now at all - CGT is only assessed on his capital gain when it he eventually sells it.
He would be liable on the 'half part' gain only if he moved into the house on his father's death.
If he continues to live in his own house, he would be liable on the half-part as above PLUS the whole of any gain above the probate valuation.
There are ways and means of getting double-relief for PPR for a maximum of three years IF he chose to change houses now and sold the current one.
That's my take on the situation - see if Dzug can do better.
Father's estate gets assessed for IHT following death - subject to the nil-rate band exemption.
Son gets the house - no CGT to pay now at all - CGT is only assessed on his capital gain when it he eventually sells it.
He would be liable on the 'half part' gain only if he moved into the house on his father's death.
If he continues to live in his own house, he would be liable on the half-part as above PLUS the whole of any gain above the probate valuation.
There are ways and means of getting double-relief for PPR for a maximum of three years IF he chose to change houses now and sold the current one.
That's my take on the situation - see if Dzug can do better.
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