I am acting for Executors in an estate where the residuary estate is left to “such charity or charities … as the executors at their absolute discretion shall determine”. The Executors have not yet decided which charities to benefit.
The estate includes various properties, some of which are being sold for more than their Probate valuations, as the estate administration has been going on for a few years now. I have informed the Executors that if they are able to decide on a charitable beneficiary, then we can appropriate the properties to those charities before sale to negate all CGT. We would need the charity’s consent to appropriate under s41 administration of estates act (the STEP Provisions are not applied in the deceased’s Will).
However the Executors still wish to wait until all assets have been sold and collected in before choosing any charity (as it is quite a large estate and they want to consider the final balance), therefore we cannot appropriate.
It has been suggested that, in order to negate CGT, I could file a C4 Corrective Account substituting the Probate value for the actual sale value which would negate CGT. Has anyone used this approach before, and would it be appropriate in this case?
Admittedly I am not certain but HMRC may not accept this as they have essentially agreed the property values by accepting the IHT 400 etc.
I have a vague memory HMRC telling me as such in a matter (I accept that could easily be incorrect where HMRC are concerned). As well as the work with the C4, which would likely take several weeks for HMRC to deal with, you (the estate) will have the 60 day CGT reporting/payment requirements to consider. The C4 procedure could well take longer and I doubt the charities, or indeed the Exors, would happy if the C4 procedure fails and there is CGT and a late reporting penalty, which can easily be avoided.
Despite my acknowledged uncertainty as your suggestion may work, I think the Exors should reconsider their stance and just get on and nominate the recipient charities to save the uncertainty and the bother.
If the estate is given on discretionary trusts to charity, has HMRC accepted that it is exempt from IHT under s.23 IHTA 1984?
If so, then might not s.256 TCGA 1992 apply to any gain?
Even should s.256 not apply, unless the property value has been agreed for IHT purposes the value disclosed may have little relevance as it will not have been “determined”, so that s.274 TCGA 1992 cannot apply. IN which case HMRC would look to the District Valuer to advise on the value at the date of death, which might be significantly different to that included on the IHT400.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
In response to Paul’s questions, we sent in the IHT400 and got the usual standard letter back from HMRC saying ‘Thank you for your IHT400… If you haven’t heard from us by xxx, you can assume that we have no no questions about the information or values you’ve given on the form IHT400’. We did not hear any further from them and they produced a stamped IHT421 showing nil IHT payable (as was required at that time), therefore they clearly accepted that there was no IHT payable.
With regard to the figures disclosed in the IHT400, HMRC did not raise any queries on them, although I’m not sure how much attention they pay to these when there is no IHT payable.
I understand from Paul’s comment that this may mean that s256 TCGA 1992 applies, so that no CGT would be payable - have I understood correctly?
You should consider s242(1) IHTA. The IHT 421 is arguably a s221 NOD or at least an agreement between taxpayer and the Board mentioned therein. You could convert it into an agreement by treating it as an offer which you purport to accept. You could surely seek a certificate of discharge and put HMRC to the test of what they have said; make them state their reasons for any refusal. s242(1) operates in the absence of a COD.
Relying on statute is much safer and cheaper than a legitimate expectation defence which unless accepted (is it ever without action?) will involve the fearsome JR route. This requires an appeal where that is available (UT has jurisdiction but not FTT) and a protective in time Part 54 claim. The JR defence can be run as a defence only, even to enforcement proceedings, but that is riskier as a Part 54 direct action may then be out of time. HMRC hate JR, even if just run past them, because it entails a verdict of abuse of power to which they are highly sensitive since they are so often guilty of it.
IHTM30401 onwards is useful on re-opening liabilities and especially on when HMRC think they can and can’t re-open values. Intriguingly I can’t find a specific reference to s242 or “recovery of tax” in IHTM!