What if a residential property is sold?
What should be a relatively straightforward and cost-effective method of administering an estate could turn out to be anything but, where UK residential property is sold.
In some instances, the estate may meet the criteria for the informal basis in the earlier years, and it might not be until assets, such as a residential property, are sold only to find the value has increased and the proceeds are over £500,000. In this case, not only is a tax return required for the year of disposal, but also the earlier years. In such cases, HMRC may impose penalties for failure to submit the returns and pay the tax due for earlier years on time as well as charge interest on the overdue tax.
Even when using the informal procedure, the 60-day CGT reporting requirements are the same as those for a complex estate. Where an estate which qualifies for the informal procedure sells a UK residential property, any gain above any remaining available annual CGT exemption (the annual CGT exemption being £12,300 for the year ended 5 April 2023, reducing to £6,000 for the year ended 5 April 2024, dropping to £3,000 for the year ended 5 April 2025), where CGT is due, HMRC requires PRs to report the sale on the CGT property disposals online service and pay the CGT within 60 days. You may not have to report a loss or gain that’s within the available annual CGT exemption but beware, because estates are only entitled to an annual CGT exemption in the year of death and the following two tax years. Also, often when dealing with the estate of a foreign individual, there could be a requirement to submit a 60-day CGT return even if there is no CGT liability.
Where the administration period of the estate ends within 60 days of the sale of residential property, HMRC make an exception to using their online service by allowing PRs to report the sale by letter (i.e. the simplified informal procedure set out above).
According to HMRC, an estate does not need to register on the TRS to use the CGT property disposals online service, nor does the estate need a UTR number. This means that where there is a 60-day reporting requirement you may need to create an account in your own name to report the estate’s gain together with any gains you make in a personal capacity.
Rather than selling the residential property and having to report the estate gains and pay the CGT to HMRC from the assets of the estate, you may want to considering distributing the property to the beneficiaries before the sale takes place. It would mean that the beneficiaries would be responsible for their own 60-day CGT returns, if necessary, and could also reduce the amount of CGT payable because of the sale.