2 estate questions

I have two related questions.

Question 1,

I have a Will and it has the following clause:

“I GIVE to such of my children *** and *** as shall be living at my death absolutely free of all taxes all my share and interest in equity in the freehold property situate at and known as *** and in the proceeds of sale thereof completed after my death and the net rents and profits thereof until sale provided that during my wife’s lifetime neither of my said children shall take any steps to dispose of or charge or otherwise deal with my interest as tenant in common in the property except at my wife’s written request but my said children may concur with my wife at her request in selling or otherwise dealing with such property whether it be for the purpose of buying other such property for my wife on similar terms or not and it is my wish and intention that my said children shall co-operate with my wife to the full in any such matters AND during my wife’s lifetime my said children shall permit her to have the full and uninterrupted use and enjoyment of the property in which I may have an interest as tenant in common at the time of my death or which shall be purchased after my death by my wife on the one hand and my said children on the other hand as tenants in common in equal shares and in the rents and profits of such property my wife indemnifying my said children against all outgoings and insurance premiums in respect thereof and against the costs of repair maintenance and decoration thereof AND I declare that no interest rent or other form of compensation shall be payable to my said children as tenants in common in any such property in respect of any period during which my wife shall remain in occupation thereof by virtue of the foregoing provisions.”

As the property is given directly to children and not to trustees is this just an outright gift of the property with a hope that the children can be trusted not to chuck Mum out or as the wording mentions during my wife’s lifetime and uses a lot of the wording from a life interest trust could it be construed as a life interest trust? The property was never put into the names of the children.

Question 2

Mum has now died. Executors get house valued by 3 estate agents and put in £275,000 a higher than average valuation for the property, on IHT 205 form. They swear papers and send to Probate Registry, a few days later the property is under offer for £362,500. This increases the estate over the IHT threshold but they have some TNRB or all if the above is a life interest trust to use. I do not believe they need to tell HMRC about the increase as there is no IHT payable, however, if they do tell HMRC and argue that the value given on the IHT 205 must have been incorrect this will mean the acquisition value will be higher and could mitigate CGT. Obviously the value of the property has not been ascertained as no IHT was payable.

My initial advice was to see a tax accountant to discuss the CGT position but the executor said that the accountant said he has never heard of anyone increasing the probate value of the property and they should speak to a solicitor!

Any thoughts or has anyone been in this position before?

Tricia Longmore
Large & Gibson

Q1 In view of the wording about the purchase of substitutional property for the widow’s occupation, this looks too much like a trust with the children as de facto trustees.

Q2 I believe that the personal representatives have a duty to inform HMRC if they believe the value to have been incorrectly stated, particularly so if that belief arises before the grant is issued. However, until contracts are exchanged, what certainty is there that the offer price will be the final sale price? I suggest they notify HMRC and, at the same time submit a claim for the TNRB, thereby covering all bases and, perhaps, avoiding any enquiries from HMRC. If no IHT is payable, as stated, the value will not be “ascertained” for either IHT or CGT and it may still be necessary to negotiate the “probate” value for CGT. By disclosing the situation, this may assist in claiming a higher CGT base cost, even if the final sale price is lower.

Paul Saunders

I would not disagree with Paul’s advice on 1 and totally agree with his
advice on 2.

However, in view of the earlier advice provided by the accountant I would,
as a ‘tax person’ add that I would be be wary of using that accountant for
tax advice.

Andrew M Mortimer