I am about to inherit my late husband’s property through probate. I have been living in it for the past two years while my daughter has been living in another property, which I own outright.
I would like to gift my husband’s property to my daughter once it is in my estate. Would she be liable for capital gains tax if she sold it while I was alive? If so, would the amount of tax liable be based on the increase in value from the date she became owner, or the price my husband paid for the property when he purchased it 20 years ago?
Because you are receiving the property from the estate of your late husband, it would be free of Inheritance Tax (IHT) at the market value on the date of transfer.
Assuming you give the property to your daughter immediately on transfer to you, you won’t suffer a capital gain, so no capital gains tax (CGT) will be due. If your daughter sells the property, whether you are alive or not, she would be subject to CGT on the difference between the value she inherits the property at and the sale price.
The capital gain on the eventual sale of your daughter’s property would be calculated as the sales proceeds less any costs incurred in selling the property, such as conveyancing fees and estate agent’s charges, less the value it was transferred to her at. Effectively, she takes on the property at a higher value than your late husband, and in this way she receives a tax-free uplift.
Because you are gifting the property to her, it would fall under the rules of a potentially exempt transfer. If you died within seven years of giving your daughter the property, IHT would become payable by her at up to 40% if the value of your estate exceeds the nil-rate band of £325,000. This can be reduced by taper relief. You would have any unused nil-rate band left over from your late husband too.
If this property qualifies as your main residence, then you may qualify for the residence nil-rate band on bequeathing this property to your daughter, currently set at £125,000.