I am acting on an estate with large debts and the only assets to speak of are properties. The properties were given a relatively low probate valuation due largely to issues with access and so I am now finding, at auction, the properties are tending to go for a higher value than probate value so we are technically into CGT territory. My residuary beneficiaries are charities.
If I appropriate the properties to the charities am I still able to pay the estate debts, costs, disbursements and legacies under the Will from the net proceeds of sale?
Alternatively will HMRC accept a corrective account following the sale of the properties on the basis that the probate values were simply guestimates?
Any advice greatly appreciated!
A common occurrence! Was an IHT 400 submitted? If not, how long after the date of death were the properties sold?
if estimates were used in arriving at the value of the properties, I see no reason why the sale prices should not substitute for the estimates. Assuming that, no, IHT was payable, HMRC inheritance tax will not be interested so the issue is with HMRC income and capital gains tax and I would’ve expected it to be possible to notify them that sales have taken place and that the acquisition values were effectively the sale prices. There is a process for applying for an alteration to valuations previously submitted, but if no, IHT account has submitted, Use of that procedure would not appear to be appropriate.
If you appropriate all of the properties to the charities but require some of the proceeds to pay outstanding estate expenses, etc., you may find that CGT relief is denied as the proceeds are not all applied for charitable purposes (s.256 TCGA).
You might consider retaining sufficient in the estate to meet the liabilities once the sale costs are deducted from that property, appropriating the other properties wholly to the charities and selling as bare trustee for them.
If the likely net sale price of the property retained will more than cover the liabilities of the estate, consideration might also be given to a partial appropriation of that property so as to minimise the potential gain within the estate.
Is IHT payable in the estate, notwithstanding that residue passes to charities? If no IHT is payable, it is unlikely HMRC will look at the values disclosed when the grant application was made other than for CGT purposes and, as the values have not been determined for IHT, s.274 TCGA will not apply.
If the property(s) sold to pay the estate liabilities are residential property(s), if the executors believe that a CGT liability will arise, they will need to submit a return and pay the CGT considered due within 60 days of the sale completing. Perhaps the auctioneers might be asked to provide their view of the open market value of the property(s) in question as at the date of death, and for the CGT position on sale perhaps to reflect that value as the acquisition value. HMRC will have to consider the computation.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Yes we did submit an IHT account - some of the estate is chargeable…
We have actually this week sold some properties for less than probate value so am now thinking I can probably offset my gains with my losses in any event.
Many thanks Paul, most helpful!