My query is relating to an estate which included a specific gift of a property to four adult beneficiaries (NOT given free of tax).
The probate valuation for the property which was carried out by a RICS surveyor and gave a value of £529,000. Since being placed on the market the property has immediately attracted incredible interest and initial offers already approaching £700,000. The valuer has been contacted by the Executor and stands by her original valuation based upon the market circumstances at the date of death in December 2020.
HMRC has issued the IHT421 but stated that they may raise queries until 30.09.21.
The estate was not taxable using all available allowances but an increase in the estate value of £110,000 would take it above the IHT threshold which was not anticipated at the time the IHT400 was submitted.
My query is relating to whether I have an obligation to inform HMRC of the increase in value (despite the fact the valuation was submitted in good faith by an appropriately qualified valuer).
I am trying to weight up if I should consider appropriating the property to beneficiaries to make use of their CGT personal allowances (if available) but wonder if I should simply wait until the end of September and delay the house sale to make any decisions.
Does anybody have any experiences similar to this one where the probate value is so different to a sale price in a relatively short period of time?
Thanks in advance
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
Useful information about HMRC’s position is contained in IHTM23185 - “Special valuation matters: land sold under a binding contract entered into after the death”.
The general rule of valuation of any asset on death is that the valuer looks forward and does not normally apply hindsight (see for example SVM113120). The VOA is invariably instructed save where IHTM23018 applies. This makes no reference to sub-threshold cases but there are FOIA exclusions.
Strictly there is no need to report to HMRC a sale price above returned death value as long as an amount equal to the tax payable on any increase which might have to be agreed is not distributed. Given an original professional valuation and its reconfirmation the PRs can scarcely justify criticism.
But finality will become imperative at some point. Until the submitted valuation is agreed there is always a risk the VOA will argue for something higher and a clearance certificate will not issue until that value is determined from HMRC’s viewpoint.
The IHT30 asks for a statement that no material fact has been omitted. It is strongly arguable that a sale after death is not one such; but of course if it has not happened by the time the form is signed and sent in there can be no question about that. While it might be prudent to postpone an imminent contract of sale for a short time until after the form has been sent, it might be a different kind of non-tax risk for PRs to completely defer until after clearance any marketing of the property, or negotiation with one or more buyers, and even contracting so as not to lose a valuable sale.
Jack Harper
I had a similar situation, but in my estate HMRC IHT had taken many months to even consider the IHT400 (submitted in March 2020 and the DV called in Dec 2020). In the mean time, the property was sold for substantially more than the date of death value (red book valuation obtained) and nobody could have known the amount of interest the property would actually generate (even the reputable estate agents had not expected this). We had appropriated prior to sale to utilise 3 beneficiaries’ CGT annual allowances and the estate’s annual allowance and paid CGT on the balance of the gain. Several discussions ensued with the DV and finally agreement was reached with the DV to increase the date of death value a little with increased IHT to pay and we reclaimed the excess CGT paid as a result.
This situation also interacts with the ‘new’ 30 day reporting for CGT and so it is not possible to delay making that report just because probate value hasn’t been agreed. You can report on an estimated basis and as Geraldine did, make an adjustment once final figures are known (if before any relevant tax return is submitted).
Lucy Orrow CTA TEP
Lambert Chapman LLP
At the risk of over-simplifying it, I would agree with Malcolm Finney’s comments. Due to market conditions, there has been an increase in value since the date of death and this is a CGT not an IHT issue. I would probably seek to appropriate to the Bs therefore as you have suggested to mitigate CGT. I think you outline to your clients the risk of HMRC querying the RICS valuation, so that they are aware of this, and apply for clearance by IHT30 as soon as possible.
I am assuming the IHT400 schedule IHT405 did not tick “yes” for applying the sale price as date of death value!
Can you do a deed of variation to add spouses of beneficairies and use their CGT allowances too?
Please may I pick up this thread to pose a supplementary question.
Nowadays, when HMRC confirm that the IHT421 has been issued, they say that if we don’t hear from them by a certain date, we can assume they have no questions. That date has passed and since then, an offer has been accepted, subject to contract, that it is quite a lot higher than the probate value, about 8 months ago. (Unlike the above cases, we used three estate agents valuations, all with the same value, rather than a surveyor valuation.)
Once HMRC’s date has passed can that be treated as the old style clearance, in which case I would report the increase as a gain subject to CGT or appropriate to the beneficiaries for them to do so?
Many thanks
N Waldman
Hodge Jones & Allen
The beneficiaries can simply gift 50% of their individual shares to their spouses prior to the sale to achieve a similar result.
Hi N Waldman, I have had similar situations and have treated it as a capital gain - either as you say in the Estate hands, the beneficiaries hands or a hybrid position.
Lucy Orrow CTA TEP
Lambert Chapman LLP