CGT, not IHT, after the first partner has died.death.

John_Pierpoint

I might be getting myself confused, but I have looked at the HMRC web site and cannot find a clear explanation.

Husband, a moderately successful business man, has built up an investment portfolio.

Husband dies leaving everything to his widow.

OK the widow now has a potential nil rate band for IHT of 2 x 325k = £650,000 when she dies.

However needing extra money, over and above the income from the portfolio plus the modest pensions; so she has been selling shares in this low interest rate recession.

If anything these shares have been sold at less than their probate valuation.

However is her acquisition cost, the probate value or some much more complicated figure years ago, before rights issues, re-invested of dividends etc. that has been "held over" despite the intervening death ?

A link to the HMRC web site would be really useful.

Thanks,

John.

zzzLazyDaisy

John_Pierpoint wrote: »

However is her acquisition cost, the probate value or some much more complicated figure years ago, before rights issues, re-invested of dividends etc. that has been "held over" despite the intervening death ?
John.

The acquisition cost for inherited property is the probate value.

http://www.hmrc.gov.uk/cgt/intro/working-basics.htm

ceeforcat

Unless they are sold at less than probate value within one year when relief can be claimed. (Last paragraph applies)

http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/shares.htm

John_Pierpoint

ceeforcat wrote: »

Unless they are sold at less than probate value within one year when [IHT] relief can be claimed. (Last paragraph applies)

http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/shares.htm

??

As the estate was (virtually) all left to the widow, IHT was not an issue.

00ec25

ceeforcat wrote: »

Unless they are sold at less than probate value within one year when relief can be claimed. (Last paragraph applies)

http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/shares.htm

I am probably out of date on this one but doesn't that relate only to where IHT has actually been paid and therefore the probate value has been "ascertained" (ie accepted) by HMRC. IF the estate was IHT exempt then there is no relief to claim as IHT was not paid and so the probate value is therefore the CGT "cost" price but HMRC may challenge the value when you submit the CGT calculation???

jimmo

John_Pierpoint wrote: »

I might be getting myself confused, but I have looked at the HMRC web site and cannot find a clear explanation.

Thanks,

John.

Sometimes it is better to look at the legislation, in this case Section 62(1) TCGA92.

http://www.legislation.gov.uk/ukpga/1992/12/section/62/enacted

John_Pierpoint

00ec25 wrote: »

I am probably out of date on this one but doesn't that relate only to where IHT has actually been paid and therefore the probate value has been "ascertained" (ie accepted) by HMRC. IF the estate was IHT exempt then there is no relief to claim as IHT was not paid and so the probate value is therefore the CGT "cost" price but HMRC may challenge the value when you submit the CGT calculation???

I think this was the bit that was confusing me; with shares there is not an issue, as the market has "ascertained" the value on a daily basis, so there can be no argument.

However with an investment property the real value as at the date of death, is very much a matter of opinion. Someone with an IHT free estate must have an inbuilt desire to make the death valuation as high as possible.

zzzLazyDaisy

John_Pierpoint wrote: »

However with an investment property the real value as at the date of death, is very much a matter of opinion. Someone with an IHT free estate must have an inbuilt desire to make the death valuation as high as possible.

I am not a tax expert - but I suggest that in order to avoid storing up trouble for the future, it might be worth getting a local surveyor in to value the property. I'd explain that the valuation is for probate purposes, and ask him to make that clear in the survey report. Yes it will cost a few quid, but as an investment in the future it might be worth it.

NB this isn't legal or professional advice - just a suggestion.

getmore4less

John_Pierpoint wrote: »

I think this was the bit that was confusing me; with shares there is not an issue, as the market has "ascertained" the value on a daily basis, so there can be no argument.

However with an investment property the real value as at the date of death, is very much a matter of opinion. Someone with an IHT free estate must have an inbuilt desire to make the death valuation as high as possible.

Thats what you do, put as much on the IHT forms as you think you can get away with, as long as the district valuer does not revalue you move forward with the probate declaration.

HMRC can review IHT later but if there was plenty of headroom on the nill rate band or if the property became a primary residence they probably won't bother.

SeniorSam

Hi John,

The value of all assets, including shares, are those at the actual date of death only. However, if the value of a building, that needed to be sold, was higher than the sale price within a reasonable time, then an application to reduce that probate value can be applied for after Probate has been granted, since it was only an estimate.

I trust that the widow considered the option of a Deed of Variation, if there was likely to be IHT when she dies, as assets in a Discretionary Trust may have an advantage?

Sam

John_Pierpoint

Hi Sam,

The investment property is a figment of my imagination. I just wondered how far back our friends at HMRC were likely to go to challenge a valuation [My exceptional experience with my own widowed mother was 20 years - so I think LazzyDaisy offers good advice].

Let us pretend for the sake of this discussion, that when Mr Businessman died 4 years ago, the shares were worth £200K and half the house £250K, then simply leaving everything to the wife has created a situation where, should she die tomorrow, her estate would be £500K (detached house SW of London, so perhaps still worth something like its probate valuation) and shares perhaps now recovered to something like their probate valuation. We can assume that most of the free cash has evaporated in care costs etc. in the mean time.

So 4 years go the nil rate band for IHT was 300K and leaving the shares to a trust would have mopped up 66% of the then nil rate band. 33% of a current £325K rate band is £108.333.

So dying without the trust means a second death with a £700K estate (£200K shares and £500k house) and a nil rate band of £325 + £325 = £ 650K. So an IHT charge of £20K to be paid.

The figures the other way round, putting the shares into trust:
£500K estate (Just the £500K house) and a nil rate band of £325,000 + £108,333 = £4.33K. So an IHT charge of £26.4K (ie £500,000 - £433,333 = 66,666 x 40% = £26,400)
Not to mention the hassle of creating the trust (£500++ ??) and submitting (say) three SA tax returns for the trust and getting tangled up in 50% Income Tax and "tax pools".

Am I missing something here?

John.