Pre-owned assets: unwinding of home loan or double trust scheme: tracing
If the property has been sold between deaths, we will expect the taxpayer to keep evidence of the sale proceeds received, and show where they are now reflected in the surviving spouse’s estate. No deduction can be made where the proceeds are not clearly reflected within their estate, and again it will only be due on a half share of the proceeds of sale.
- If the proceeds have been invested, we will expect the taxpayer to keep the proceeds derived from the first spouse’s share separate from those of the second spouse. If the proceeds are invested as one portfolio and later withdrawals are made from it, e.g. for the surviving spouse’s capital expenditure, HMRC will treat the withdrawals in the same way as gifts below.
- If the property is sold, and the proceeds not clearly separated then no deduction can be claimed unless there is clear evidence of the assets into which the proceeds were invested did represent the first spouse’s half share and that these have already been taxed on the first spouse’s death.
- If the survivor gives away half the proceeds of the house, then the assumption will be that a quarter represents the share inherited from the first settlor and upon which a deduction can be claimed, and the remaining quarter reflects the share always owned by the surviving spouse.