When someone dies and their residential property is sold, should the disposal and capital gain be reported on the deceased’s Tax Return for the year of death?

Was the property sold before the individual died?

If the property was sold before the individual died, the disposal was made by that individual and unless any gain realised was fully covered by Private Residence Relief, should be reported on the Self-Assessment Tax Return that will need to be prepared for the period from 6th April up to the date of death.

If full Private Residence Relief was not available, the deceased should have filed a CGT Return reporting the taxable gain, within 60 days of the sale. The Capital Gains Tax due should also have been paid within 60 days of the sale.

The CGT Return reference and the tax paid will need to be included on the CGT pages of the Self-Assessment Tax Return. This allows for collection of any underpaid tax or repayment of tax overpaid, once the final position for the year has been identified.

Was the property sold after death?

When a property is sold after an individual has died, the reporting requirements and any tax due will depend on what was specified in the deceased’s Will.

Specific Provisions

When a specific property is left to a named individual in the Will and legal title has been transferred to that person, they will be responsible for reporting the disposal of the property (or their respective shares if the property was passed to more than one person) via a CGT Return. The Return must be filed and any Capital Gains Tax paid, within 60 days of disposal. The individual will be treated as acquiring the property at probate value, so in practice any capital gain is likely to be minimal unless the property has been held long enough for its value to increase significantly.

If the individual is already registered for Self-Assessment and required to file a personal Tax Return, they will also need to include details of the disposal and Capital Gains Tax paid on that Return.

Note that if legal title is not transferred prior to sale, the property will be an asset of the Estate and treated for tax purposes as detailed below.

Estate Assets

Where the Will states that the deceased’s estate should be distributed equally between beneficiaries, the executors may dispose of a property so the equivalent value can be distributed as cash rather than transferring the asset itself into the joint ownership of multiple beneficiaries. This will be a disposal by the Estate, not the beneficiaries.

The Executors will need to file the associated CGT Return and pay the tax due using Estate funds. The disposal must also be reported on the Estate Tax Return. If additional tax is due via Self-Assessment it will be treated as a liability of the Estate. Likewise, any overpayment of tax will be refunded to the Estate.

Further details can be found in HMRC’s guidance.

HS282 Death, personal representatives and legatees (2022) – GOV.UK (www.gov.uk)