I am advising executor clients to obtain a Red Book open market valuation of the deceased’s property as at the date of death. Unfortunately, the property sustained extensive damage on the date of death. It is unclear whether the deceased died prior to, or after the damage. The executors are unable to trace any buildings insurance policy. I am recommending that the valuation comments on the damaged and reinstated values, however in the absence of any valid insurance, the executors will clearly want to use the lower value for IHT purposes.
I am aware that section 9 of the IHT405 allows us to detail special factors which affect the value, but this presumably relates to factors which existed pre-death. Do we think HMRC will accept a lower value as a result of damage which might have occurred contemporaneously with the death or, indeed, shortly after even if on the same calendar day?
I would have said that the right steps were to value the asset at the moment before death I.e. as undamaged and then claim loss on sale relief under ss.190-198.
But there is also a nasty reference to the land being in the “same state” at each date, of death and of sale: s193(2)(b).
IHTM33122-4 provide examples. 33124 is relevant as it deals with the reverse of your situation, commentary on which is significant by its absence. I fear that the relief is denied because the damage, even if accidental, is regarded as a factor like the lease granted in 33122! The actual sale price of the land as damaged would be adjusted to its open market value in its undamaged state albeit at the date of sale and relief would be due only if it then still yielded a loss. In short the relief will only apply to cases where the market has deteriorated or the death value as returned was higher than market value (in error).
Often there will be an insurance policy to defray repairs, not of course an asset of the death estate in the absence of an insured risk having crystallised.
So here the executors must decide whether to sell as is or repair out of the estate, perhaps even to borrow, if advised that the sale price will exceed the costs.
This is the worst view on the basis that death preceded the damage. Depending on the quality of the uncertainty surrounding the date of death or of damage or both you might be able to persuade HMRC to accept that the damage preceded death so the property can be valued then as damaged. You might find that they agree that relief ought to be due in fairness but do not wish to give blanket advance approval in the Manual, as opposed to judging each case on its merits. It does seem very unfair that relief can be claimed for a simple drop in the market but not for uninsured damage. Again, their silence in the Manual may be because they expect most premises to be adequately insured save only where the consequently undeserving deceased was at fault for the insurance being insufficient, non-existent, or a claim being refused.
I have never come across your precise case, even where damage clearly followed death, but someone else may have done.