I am dealing with an estate which includes a matrimonial home owned as tenants in common, the deceased’s half is going into a discretionary trust (and likely will be appointed out to a Right to Occupy).
My understanding is that HMRC will allow 15% co-ownership discount. However, we don’t need to use the whole 15% discount to get the property to a value which falls within the available RNRB. Applying around 7% discount will have the same effect for IHT, whilst reducing probable CGT on the eventual sale of the property.
In the IHT manual, HMRC state what they will agree to discount the property by (10% or 15% depending on the circumstances), but I can’t tell if this is fixed or a maximum. Would it be permissible to apply less than the % HMRC state in their guidance please?
It depends on the circumstances of the case. Where property was co-occupied, HMRC allow anything between a 10% and 15% deduction depending on the circumstances. The leading case that HMRC looks at is Wight and Moss v IRC (1984) 24 RVR 163; (1982) 264 EG 935 (Lands Tribunal). In the Wight case, the co-owner was occupying the property as her home and this justified a 15% discount on the grounds that it was not “highly likely” that a court would order possession.
It is different for holiday homes.
I would still claim the 15% discount, in case the District Vsluer challenges the Valuation and not the level of discount.
When it comes to land, any discount is a matter for the valuers: the executors should simply instruct their valuer to value the deceased’s moiety. Any dispute on the matter of discount would be between the executors’ valuer and the DV and not between the executors and the inspector. See IHTM15072.
The guidance on discounts and when they apply is to be found in the VOA’s manuals not in HMRC’s.
I take from the original post that the other owner might be the deceased’s widow/widower in which case it would be related property caught by s161 and so no discount.
Where land is jointly owned (whether tenants in common or not) a 50% share therein is valued at 50% of vacant possession less an appropriate discount [Wight and Moss v CIR Lands Tribunal [1982]]. However, if the joint owners are spouses the land is “related property” (s161) in which case the discount does not apply [Arkwright and another (Williams’ PRs) v CIR [2004]).
A comment in section 7.23 is “In CGT cases, even though the joint owners of a property may dispose of their interests together, if a valuation at 31 March 1982 is required it is necessary to separately value each taxpayer’s undivided share. It should not be assumed that the other shares are on the market at the same time.” But there is an exception when the shares are acquired on death as legatees when the entirety is valued and each has an acquisition cost of a proportionate part of the whole: 7.28 See also CG74200.
Following on from Jack’s observations, care needs to be taken where s.161 IHTA 1984 (related property) applies to joint property as s.274 TCGA 1992 only applies where the value of such property has been “determined” (i.e. agreed with HMRC) for IHT. If the deceased’s share of the joint property passes into, say, a life intertest trust for the surviving spouse/civil partner, due to the s.18 IHTA exemption the value will not have been “determined” for IHT, so that for CGT purposes, the trustees acquisition value will be subject to a discount for joint ownership.
This can have the unwelcome effect of a chargeable gain arising even though the property mighty be sold for less than the value disclosed for IHT.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals