Dealing with probate can be complicated as well as emotionally challenging, so you should consider seeking professional independent legal and financial advice when this occurs. New rules have been implemented from April this year and there are a few aspects to consider in respect of reporting capital gains tax (CGT) on the sale of a property.
Firstly, if a CGT liability arises on the sale of a property, a 30-day window for reporting the property disposal and paying any CGT due will commence from the date of completion of the transaction as opposed to the date of the exchange of contracts. Therefore, a proportion of the funds received on the sale could be allocated to settle the tax due to HMRC.
Recognising the current quarantine/lockdown conditions and the new reporting rules, HMRC has said no late filing penalties will be issued for CGT returns and payments received up to July 31st 2020. However, late payment interest will be charged for payments of CGT made later than 30 days following the date of completion.
In calculating whether there is a capital gain or loss, an individual can deduct certain costs and expenses from the sale proceeds. In this case, the property ‘cost’ will be equal to its probate value at the date of death. Expenses, such as conveyancing and estate agent fees and improvement costs to the property borne by the executors, are deductible. If a capital gain is realised, the Executors have a CGT annual exemption in the tax year of death and the following two tax years, which may be available to offset against gains and reduce the amount of CGT payable depending on sales of other estate assets. The annual exemption for the 2020-21 tax year is £12,300.
The estate will need to be registered with HMRC to complete the return form, so this is something an individual can do following exchange of contracts. The gains will also need to be reported on the estate’s annual self-assessment tax return, if one is completed.
Finally, where the deceased person held the title deeds solely in their name, a grant of probate is generally required to enable the Executors to complete a sale. However, in certain circumstances a property can be sold before probate is granted, for example, where the property has joint owners.