I am acting on an estate whereby the property has recently sold for a great deal more than was submitted in the IHT400. However, the increase in value is entirely attributable to the fact that there was a water leak at the property prior to the deceased’s death, which caused significant damage and there was a vast amount of work undertaken post-death to bring it up to marketable standard.
These rectification/redecoration/improvement costs outweigh the gain in value, particularly when combined with the costs on sale.
Do I still need to report the “gain” to HMRC, despite the fact that there will be no CGT payable?
If there is no actual capital gain on disposal (ie sale proceeds less deductible costs) then is not FA 2019 Sch 2 para 4(1) in point in which case no Return within 60 days is necessary:
"4(1) If—
(a) a person makes a disposal to which this Schedule applies as a result of paragraph [1(1)(b)] and
(b)the person would not be liable under paragraph [6] to pay an amount on account of the person’s liability to capital gains tax for the tax year concerned,
the person is not required to make or deliver a return under this Schedule in respect of the disposal".
If there was an insurance claim for the damage, would not the proceeds of the claim will also need to be taken into account as they offset at least some of the repair costs?
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thank you for your comments. The remedial costs were not covered by insurance (there was no insurance in place prior to his death!). All improvements were paid for by the Executors personally.
This is interesting because we have had discussions within the office about the requirement to report even if there is either no taxable gain or a loss, in that the reporting form refers to any losses that are to be set against any gain made . We are experiencing more estates where there are multiple properties and other assets owned which are then sold off- often over a period of time -spanning tax years. Some may sell at a loss , some at a gain - we may want to use the loss from one sale to offset any taxable gain on a later sale but that later sale may be outside the 60 day window from the first sale… Also there may be other assets that have been sold which resulted in a gain We would want to use the loss on the first sale to offset the gains made later but that first sale may not have been reported to HMRC. If we then report we could be outside the 60 day so we tend to report even if a loss and are likely to do so unless HMRC tell us not to , which they have not so far! They acknowledge and merely confirm no tax payable but at least we have a reference for the subsequent sales/tax returns. Any views welcome
There is no relief for revenue expenditure (s 39(2) TCGA 1992).
But you should be able to successfully argue that the cost of the repairs isn’t revenue expenditure (see The Law Shipping Co v CIR (1) (1930) 12 TC 621).
I deeply sympathise but all you can do is make the in-year procedure work as best you can and then rely on the mopping up procedure after year-end, ideally making a very early return. (Though see below for a warning).
As far as I can see if your total interim payments equal your eventual liability the most HMRC can do is rework it all and try to charge you interest and penalties. If it turns out that their computer software design can’t cope with in-year losses, you can pop down to the FTT to generate some adverse publicity for their incompetence, if they let it get that far. If your interim payments are excessive due to non-recognition of losses I suppose you could even use the post to challenge them or, if you have hours to spend and your client will pay, the telephone, now they are still speaking to us, allegedly.
My daughter filed her 2023 return on time but recently received a letter chasing payment of tax and interest. They had completely failed to link her on time interim payment with her return. Our assumption was that the online procedure would not have let her past a question about whether a payment had already been made. But of course no one can exactly retrace a completed online procedure, unlike a paper copy. A downloaded copy of the return was in facsimile paper form and not in the usual format of a list of questions with the answers given. The tax paid box was empty. The reference on the CGT receipt is not. and nowhere shows, her UTR. A caustic 8 page letter has been sent but not requesting damages for calumny and demanding money with menaces without justification, just explanations at present.
She has also sent a 64-8 nominating me as her agent and demanding my access to the Agents’ Forum or to know why not as we each have a “legitimate expectation” thereof. The neat little Scam meant she paid CGT on September 21 2022 rather than on January 31 2024. Nice little Treasury earner, Guv. Soon the system will be debiting tax on a daily if not minute by minute basis to our bank accounts via a App.