(1) Property is sold for more than the value declared on the IHT Return within 12 months of the date of death
(2) The estate was not initially subject to IHT
(3) The increase in the value of the property does not lift the estate value above the combined IHT allowances, meaning the estate is still not subject to IHT
Can the executors work on the basis that the sale value has been substituted for the declared value on the IHT Return, meaning the estate would not be subject to either IHT or CGT, where they have responded ‘yes’ in column F of box 11 of the IHT405 to the question “Do you want to use the sale price as the value at the date of death?” Do they still need to report the gain to HMRC, or are there no further reporting requirements given that the change does not affect the tax position of the estate?
If there is no IHT payable, HMRC do not consider that the date of death value has been ascertained. It is up to the executors to decide whether to report the original value as the base cost and pay CGT on the difference or treat the sale price as the true date of death value. If there is a gain and CGT is due it is reportable within 60 days of completion. If there is no CGT to pay, it will be reported either as a complex estate on an SA900 or informally at the end of the administration period. An explanation of the base cost should be provided and HMRC can then decide whether to refer it to the Valuation Office Agency.
You need to bear in mind that if the date of death value has not been agreed/ascertained for IHT purposes [ normally where IHT is payable ] then it has not been established for CGT purposes - s274 TCGA 1992 and the value you put forward for CGT is effectively an estimate.
I had exactly the same situation with a client of mine.
My conclusions at the time were:
That there is no mechanism by which to substitute the higher sale value for the property for the Probate value. This is because the only person/s who could make such a claim under IHTA1984 s.191 ( Inheritance Tax Act 1984 ) is the person/s who paid IHT against the deceased person’s estate (IHTA1984 s.190 - Inheritance Tax Act 1984 ) such that, if no IHT was payable, no one can claim.
The executors must pay CGT on the uplift in the sale price over the value reported in the IHT return.
When I come across this my first question to the agents is does the increase represent the movement in the market or was there a special purchaser who was prepared to pay over the odds. If the answer is no the I ask them to take another look at the date of death value and go forward from there.
On a separate but somewhat related topic, as I cannot access the Forum for posting as opposed to replying:-
I am acting in an estate where the deceased owned two properties which the Executors intend to sell. One of the properties is on the market already and is likely to fetch a lower price than the Probate valuation. The other property is held under a lease which has only 75 years to run. The Executors have therefore decided that they will extend the lease for that property, so obviously what will be sold in due course will be different to what was held at the date of death. It will no doubt fetch a higher price than the Probate valuation when there was the short lease. If the Executors make a claim for loss on sale relief, how do HMRC treat the property that had its lease extended?