Capital Gains Tax

Aliss08

Looking for some advice please. I have just found out that I have to pay CGT due to an estate agent undervaluing a property for probate. I have no idea why she did this and as I haven't ever dealt with anything like this before I didn't query it at the time. The property sold for an additional £45k some 6 months later so I now have to pay GCT on the difference. If she had valued the property correctly it would have still be within the Inheritance Tax allowance etc. so am a little peeved that I am now having to pay this tax. Do you think a solicitor would be able to help get the estate agent to pay it? Any advice appreciated.

jimmo

You seem to have been given some duff information.
The probate value of the property only counts for capital gains Tax purposes if it has been "Ascertained". That is that Inheritance Tax has actually been paid.
http://www.hmrc.gov.uk/manuals/cgmanual/CG32224.htm
　
You need to start again and obtain a realistic valuation of the property at the date of death and base your capital gains computation on that.
http://www.hmrc.gov.uk/manuals/cgmanual/CG32230.htm

Aliss08

Thank you for your reply Jimmo. I'm even more confused now! I'm unsure if the amount was ascertained or not, how do I know for sure? The probate value of the property was used to work out if any Inheritance Tax was due by HMRC and there wasn't- is this the same thing?

I have written to HMRC to advise them that I think I have a CGT to pay so I guess I'll wait to see what they come back with. Thank again for your help.

Hawkeye4aneye

If the total estate value was above the IHT theshold so you were paying IHT then the HMRC would increase the value of the property to the sale price and recalculate the IHT, which is payable from the estate and not just from you.

If the total estate value was below the IHT threshold originally BUT with the additional increase of £45,000 this takes it over the threshold then IHT will be payable as calculated by the HMRC, and yet again due from the estate, and not from you.

If the total estate value was below the IHT threshold originally and even with the additional increase of £45,000 this does not take it over the threshold you can I think use the same argument about the value increase as the Revenue utilise to increase the estate value in the two examples above. Thus you should be able to increase the value of the property to the sale price as you are normally allowed to do this within 1 year of death.

The HMRC should tell you this when they reply but just in case you get some numpty replying be prepared to argue that the value should be the sale price for IHT purposes, not the figure that the Estate Agent put forward.

I hope this helps.

Aliss08

Thanks for your reply. The whole thing is beginning to make a little more sense now and I will certainly be more prepared if some numpty (an excellent choice of words given the last person at HMRC I spoke to!) trys to tell me otherwise. Many thanks again for taking the time to reply.

chrismac1

Avoid accusing HMRC of employing numpties! They are sensitive flowers and will come down on you like a ton of bricks - at least that's what happened to me!

jimmo

Before you posted on here you thought you would be facing a Capital Gains Tax bill. On a Capital gain of £45k that would have been over £6k and, depending on your personal circumstances, could have been a lot more.
Whilst I claim no expertise in Inheritance Tax I believe that there technical arguments to say that at least some of what Hawkeye4aneye has said is not strictly correct. and, as a novice, I think you would be wise to steer clear of arguments you might not win.
Keep it as simple as possible.
1) If no Inheritance Tax has been paid the probate value has definitely not been ascertained.
2) You are potentially liable to Capital Gains Tax on any increase in the value of the property at the date of death of the deceased to the date of sale.
3) It is easy for us all to imagine that, in the present climate, the value of a property would not have increased over 6 months. (6 months is something you have mentioned.) It is also easy to imagine that the value of the property actually fell during the relevant period. If it did, you have a potential Capital Gains loss. However whether that loss is of any potential value to you is really difficult to say, but probably not.
4) If you choose do go down the route of arguing that the value of the property did not increase between the date of death and the date of sale then, one way or another, HMRC will refer that point to the District Valuer and, effectively, the District Valuer will be free to make his own valuation. If you get a professional valuation the District Valuer's mindset will change from "What do I think the property was worth?" to "Is that professional valuation realistic or not and can I challenge it?" .
5) As a former "numpty" myself, I am afraid that unless you know the right questions to ask you are unlikely to get much useful information out of HMRC. I am guessing that you wrote to HMRC before you posted on this forum and have basically told them that you believe you are liable to CGT. The most likely result is that you will get a form or an informal questionnaire in letter form.
6) Can you handle this yourself or do you need professional help?
With a bit of luck and an iron will, you can handle this yourself. However if you are going to buckle under the pressure that we "numpties" unwittingly exert on those who are out of their depth you would probably be far better off getting professional help sooner rather than later.
I like to think that if I were you I would be prepared to spend some hundreds of pounds on professional help in order to guaranty not having to face a tax bill of thousands but you really should remember that HMRC do not have a monopoly in the numpty world. Numpty accountants really do exist.
Take your time, think carefully its your money we are talking about.

Mojisola

jimmo wrote: »

2) You are potentially liable to Capital Gains Tax on any increase in the value of the property at the date of death of the deceased to the date of sale.

Surely you can't be liable from the date of the death because you don't become the owner until the will is all sorted out.

Aliss08

Jimmo,

I meant no offence. Unfortunately I haven’t had any good experiences in trying to settle the estate in question. Dealing with all the various organisations has been a complete nightmare from start to finish with the exception of Nat West who were brilliant. By far the worse of the lot was Santander whose stupidity beggars belief. All this while dealing with a loss too didn’t help. I’m just annoyed by this whole issue as I thought everything was settled now after nearly 14 months in total. I wouldn’t have any of this to deal with if the estate agent had given a correct valuation at the time. I know I should have got three different valuations but I was working full time and having to keep taking time off just wasn’t an option for me. Again thanks for your good advice below, I will think long and hard before proceeding once I have heard back from HMRC.

jimmo

No offence taken. As a retired taxman I have no problems with my own tax affairs but, if I had any hair left I would tear it out when talking to call centres for any organisation, Government or commercial.
Going back quite a number of years, if one of my customers phoned up and threatened to make a formal complaint I would move Heaven and Earth to sort out their problem and avoid a complaint. Nowadays it seems that the measure of good customer service is not to deal with your problem but to ensure that you know how to complain.
Such is life.
Now, in your particular case, I think you need to concentrate on what matters to you in money terms.
You effectively say that the estate agent was incompetent but, what, apart from any fees you paid, has it cost you?
From your own words it hasn’t affected the amount of Inheritance Tax which remains at nil.
It hasn’t affected your potential liability to Capital Gains Tax because you have found out that that unascertained probate values have no relevance.
Sue the estate agent for the fees charged if you wish but make sure you get on top of your potential Capital Gains Tax liability.