Increases in property prices CGT or IHT?

I would welcome others thoughts on the following:-

We in the South East have seen a frenzy of house purchases since the SDLT holiday.

Consequently properties that were valued in February & March for probate purposes have sold at sometime £50,000 plus more.

Should this be treated as a capital gain or more preferably for us ( as we have an unused RNRB) a revaluation of the probate property?

Gill Collins
Warwick & Barker

I think you have probably answered your own question. It is clearly a gain on the basis that the increase has arisen post death. If a probate value has already been submitted, whether accepted or not, it would be difficult to now argue a higher value, albeit not impossible. That said, I am of the view that it is a gain.

Haroon Rashid
I Will Solicitors Ltd

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It is likely to vary from case to case depending on the facts. If the valuation submitted to HMRC was based on an estate agent’s ‘appraisal’, then there may be scope to substitute the actual sale price for the earlier valuation. If the original valuation is from a chartered surveyor then I would suggest that your scope is more limited. You are also more likely to be stuck with the probate valuation if it has been ‘ascertained’ for IHT purposes.

Thinking out loud now, other than the time and relatively modest additional costs incurred, is there much of a downside in submitting the actual sale price to HMRC IHT and seeing what view they take? I suppose it depends on the amount of tax at stake?

If you are looking at a CGT bill, could the sale be made by the executors as bare trustees on behalf of the beneficiaries in order to bring more annual allowances into play? This can be done by appropriating the property prior to the exchange of contracts. If it is too late for that, it might be possible to argue, depending on the facts, that the sale took place after the administration period ended and therefore, the executors were selling as bare trustees anyway.

Steve Carter
Setfords Solicitors

Thank you very much for your replies. The original valuation was based on the average of three estate agent valuations - done by way of a letter from the agents, as the estate is not taxable (IHT205/217).

I would rather substitute the sale value for the “probate” estimated value, as we have the headroom from the NRB & RNRB and therefore still no tax to pay. Whereas, if we consider the increase to be an actual gain then CGT would be payable. To be on the safe side I will appropriate the property before exchange of contracts. I wonder if I should contact the district valuer and see if they have a view, or would that be opening up a can of worms…

Gill Collins
Warwick & Barker

S274 TCGA 1992 states:-

“Where on the death of any person inheritance tax is chargeable on the value of his estate immediately before his death and the value of an asset forming part of that estate has been ascertained (whether in any proceedings or otherwise) for the purposes of the application of that tax to the estate, the value so ascertained shall be taken for the purposes of this Act to be the market value of that asset at the date of the death“

As there was no IHT to pay in your case, I would suggest that you get a chartered surveyor to value the property at the date of death making him/her aware of the sale price and the date of exchange of contracts and if that produces a better result, submit that figure rather than the figure included in the IHT form to HMRC in the calculation. I think you will be wasting your time trying to discuss the matter with the district valuer’s office since it only becomes involved when it is instructed by HMRC, whether it be in respect of valuations for inheritance tax or capital gains tax.

Patrick Moroney

It’s clear that the value hasn’t been ascertained yet for IHT purposes.

From your initial email, I think it is only 7 or 8 months since the date of death. If that is the case, I would substitute the sale price for IHT purposes and see what HMRC say. They will refer it to the DV if they feel it necessary.

Steve Carter
Setfords Solicitors

As the value was not ascertained for IHT purposes (estate not taxable) you will be looking at CG34 procedure.HMRC will not accept a revised value for probate submitted on C4 to alter base value for CGT purposes.where no IHT paid

HMRC will expect you to use CG34 procedure to determine the value. Given that they may not respond in time (3 months) it is best to get this in now and state offer received and send in RICS valuation and see what they agree.

I would suggest that in the meantime the PRs use CGT allowances by using Deed of Appropriation to the beneficiaries before exchange of contracts for the sale. Remember if any beneficiaries are married they can also do a Deed of Variation to add on their spouses before appropriation to get their allowances too.

Maria Goodacre
Bells Solicitors Ltd

According to IHTM33026 where there is no IHT due on the sold land, you cannot substitute a higher sale price for the date of death value. This is also stated in CG32234 which specifically refers to eliminating a chargeable gain on sale. The value has not been ascertained for CGT purposes under s274 so there will be a gain using the market value at the date of death. You could try to obtain a surveyor’s valuation as at the date of death but three estate agents valuations are usually reliable and therefore it appears a gain has been made.

Ihsan Ali
I Will Solicitors Ltd

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While I personally have no problem at all with this proposal as being both lawful and unlikely to be overridden by the GAAR, I have to point out to those who advocate condign punishment for tax avoidance that this is actually such. I prefer to be taxed by law and not by the subjective evaluation of, for example, Margaret Hodge MP and Mr Richard Murphy.

There is much talk by these, and byothers who should know better like the authors of the PCRT and the SRA, about the “intention of Parliament” and some tax avoidance as being manifestly contrary to it. As I understand it, the law remains that this is to be determined, ultimately by the judiciary, from the words used in the statute, interpreted in the modern way purposively or contextually, with extraneous material admissible only as and when settled principle ordains.

The intention of Parliament is not what MPs or commentators (and definitely not HMRC) say it is, save insofar as those principles permit reference to Hansard e.g under Pepper v Hart or to travaux preparatoires or under other proper exceptions. See Lord Nicholls in ex parte Spath Holme Limited [2001] 2 AC 349.

The action advocated here is a classic choice of route. I estimate that 90% of all the tax advice I have ever given involved that. Sometimes one available route is a disaster, described (and excused from counteraction if deliberately avoided) by the GAAR guidance as a “bear trap”. To a lay client it is often the the most logical, commercial and straightforward way to go.

I have never had the slightest difficulty in differentiating avoidance from evasion or in ensuring my clients did so or in not accepting instructions at all from those with apparently poor fiscal hygiene (except to facilitate their grovelling repentance, full disclosure to HMRC, and submission to their just deserts).

It is intolerable for advisers, in deciding whether or not to advise clients on action like that recommended here, to be expected to discern the intention of Parliament by looking into its soul (compare Psalm 139 for a precedent) although clients must always be warned of the potential effect on their reputation of the disapproval of lawful conduct by people who matter to them, however misguided or malicious I may regard them.

Jack Harper