CGT/IHT on increase in value of property in estate

Trusts Discussion
1

This may be a case of the world (and HMRC) having moved on and me not having kept up but bear with me.

I have recently had a couple of estates where the date of death valuation of property was significantly lower than the eventual sale price.

In both cases I have assumed that the dod valuation was under-valued and have returned the increase to HMRC on C4 and paid the tax. In both cases this has been rejected.

In one case HMRC said ‘We have chosen not to enquire into the date of death value of the property and we will not reopen or reconsider any other value for IHT. We are content with the original date of death value… At the same time when you report the Capital Gain you are not bound by the original date of death value’. I actually rang and queried this and was told that was right.

In the one I have received today I am told ‘The date of death value of the property has already been accepted therefore any increase from sale may be subject to CGT’.

I am old enough to remember long fights with HMRC in these circumstances where Executors argued that an increase was a gain (and subject to CGT) and HMRC argued that it was an incorrect dod valuation (and subject to IHT - so a higher rate of tax due). They always won and so over the years I have simply started to accept that if a property sells within a year or so of death for a higher value then the dod valuation must have been wrong and IHT is due.

Has their policy now changed?

Are others finding the same thing? Should I now be assuming that they will accept that any increase in the value of a property since dod is capital gain unless they argue otherwise?

Clearly this is a good result for the client (especially in my first case above) but it doesn’t seem a particularly positive approach for the Treasury…

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TCGA 1992 s 274 deals with the IHT/CGT position where values at the date of death are “ascertained”; Stonor & Mills v IRC [2001].

See also CGTM para 32222.

I provided a response to a similar query "The value for probate/inheritance tax (probate) is simply the market value at the date of death. Assuming therefore the valuer took into account all relevant facts and circumstances (eg hope value re possible development) at that time the subsequent increase in the property’s value is irrelevant for IHT on death purposes. Hence there is no reason to notify HMRC.

Any sale of the property will it seems give rise to a CGT charge either on the executors or beneficiaries (if an appropriation is effected)."

Malcolm Finney

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May I ask: On the IHT405 Box 12 F “Do you want to use the sale price as the value at the date of death” did you answer Yes or No?

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Can I add to this: is there any statutory basis for the IHT405 Box 12 F question and, assuming not, is the justification for it sitting somewhere in guidance I have not yet traced? I can see the common sense in taking the actual sale within 12 months of death (absent special factors) as a better way of establishing open market value than any number of professional valuations but it seems odd there is no obvious HMRC commentary on it (that I have seen).