I am dealing with an estate where we have a possible CGT liability. The property was included in the IHT205 with a value of £100,000. As IHT was not payable, no formal valuations were obtained.
The property is now selling for £140,000. There is only one residual beneficiary, she owns her own property and does not live in the deceased’s property. As far as I can see, there is no benefit in transferring the property into the her name prior to sale.
I believe that it is possible to ask HMRC to re-assess the acquisition cost when a CGT liability arises. Is this correct? If so, how do I go about doing so?
If anyone has any suggests of how to further mitigate or eliminate this liability it would be greatly appreciated.
Was any valuation advice taken before submitting the IHT205, or was the £100,000 figure merely a guestimate?
If a marketing valuation, it might be difficult to justify to HMRC the adoption of a higher value, especially if it will reduce the CGT charge but still leave the estate within the nil rate band.
If no reliable valuation was obtained, it may be appropriate to obtain a formal valuation now, if it would justify a higher figure.
I understand that HMRC will usually refer to the local DV to check if the valuation falls within the bounds of “reasonableness”.
When considering whether or not to dispute a figure, I suspect that amongst the factor HMRC will look at include not only the potential amount of tax in dispute, but also the compliance record of the taxpayer and/or their adviser. It may be less likely to accept figures at face value from a taxpayer or their adviser who is regularly seen to “try it on”
Te question the personal representatives need to ask themselves is what was
the true market value at date of death?
In other words has there really been an increase in value of £40K since
death?
As the value has not been established for IHT it is open to the personal
representatives to use, irrespective of what figure was used on the IHT205,
whatever figure they consider was the market value at the date of death for
the CGT calculation.
Remembering of course that if a higher than £100k date of death market
value would result in the estate being liable for IHT they will need to
declare this to HMRC for IHT purposes.
In the circumstances described paying CGT on a gain of £40K would in my
view lay the personal representatives open to a claim against them by the
residual beneficiary.
You do not say how long the death was but personal representatives only
receive a CGT annual exempt amount exemption for the year of death and
next two years.
In my view the personal representatives should also enquire of the
residuary beneficiary if they have any personal CGT losses they can set
against any gain on the property if it is assented to them before sale and
what their personal rate of CGT would be on any gain.