Do I need to amend my Probate property valuations?

John_Pierpoint

silvermum wrote: »

I'm hoping John & Jimmo can help me out here...??

I'm dealing with my late fathers estate. There is no IHT to pay as it is about £130K under the £650k limit (we transferred my late mothers full nil rate band). I completed the IHT205 and got the grant back in June.

There are two properties - A - his former residence , and B a holiday house.

At the time of the probate application I think we were too conservative and valued the properties at A: £210k and B: £100K
We were told 'approximate' values would be fine since we knew there was no IHT due.

However since then property A has sold for £230K.

My sister wants to have property B as part of her inheritance, so we got 3 estate agents to give us market valuations, and the mid point of these was £120K.

So various questions:
1) are going to be liable for CGT on property A, or will it just manage to be exempt using two years of CGT allowances? The death occurred in March this year, so the administration spans two tax years.Or is it totally exempt as a former primary residence?

2) Is there any problem with my sister inheriting a property with a lower probate value than its estimated real market value?

3) (A slightly unrelated question) My sister thinks the 'value' of property 'B' for the purposes of her inheritance should be discounted to £110k/£115k to reflect the fact that the estate will not have to pay legal/ estate agents fees etc to sell it. Is this acceptable?

Can we make the following assumptions:
Only the one £325k nil rate band was available for IHT purposes?
The estate has precious little in the way of assets other than the two properties?
Both you and your sister have your £10,900 CGT allowances available. .


It is looking like jimmo has missed this one; so as my experience is mainly of having blundered through the IHT/CGT trap, reasonably successfully, here is a bit of hearsay evidence:
Yes you can revisit the probate valuation of the properties, though this is no guarantee that the valuation office agency will agree with you.
From practical experience "comparables" and evidence of the condition (photos) are a help.
https://forums.moneysavingexpert.com/discussion/comment/63258112#Comment_63258112

HOWEVER

Legally speaking the the estate is a trust until it has settled its taxes and paid its debts, it then becomes a bare trust, otherwise called "a trust of convenience" and the beneficiaries will be responsible for self assessing & paying their individual shares of CGT tax liabilities.
So the tax man could argue that is the liabilities of the estate in the way of tax and debts are sufficiently large, the beneficiaries could never have inherited the properties and then sold them.
It just might be useful for you and your sister to minute the discussion you had considering these matters before you decided to sell one of the properties.

This you as beneficial join owners have now done, and made a net gain of less than £21800 between the two of you.
If you are already doing self assessment then you need to report your share of the disposal & gain in your annual return [there is some controversy on this forum about the need of non self assessment tax payers to report disposals over 4 times the CGT nil rate when no tax is due]

Even if the will says anything specific about the fate of the two properties, you would have the right to create a deed of variation, within 2 years of the death, to suit yourselves as beneficiaries, so how you share the property versus the cash is up to you. [Fortunately as the estate is an excepted one there is no need to get twisted up in how you share out the Inheritance tax liability.]

The idea of you sister benefiting, by saving the estate from estate agency fees, seems very reasonable - I was once at an auction where I overheard a conversation and realised that one of the lots had been put into the auction: Two siblings were fighting over an asset and had been told to go and bid for it !

Personally I think I would delay instructing my bare trustee to dispose of my half share in property "B" to my sister, until the 6th of April next year, to avoid the suggestion that I might be making another £5k "profit" on that disposal.

Of course you are stuck with your relatives, and there will be the realisation in years to come, that one of you might have made the wrong decisions:D

silvermum

Thanks for the replies and links to more info - all very helpful!

Re some of the questions from John:

Can we assume:
Only the one £325k nil rate band was available for IHT purposes?
My father his own £325k allowance and we claimed my late mother's full £325k exemption as none of hers was used when she died in 2004. No others available.

The estate has precious little in the way of assets other than the two properties?
There are also shares/gilts worth about £24,000.
The rest is cash/isas.

If it looks like there might be CGT due on the house I was thinking about transferring the shares to me as part of my inheritance, and then I can control the sale and subsequent CGT in the future. Is this wise?

Both you and your sister have your £10,900 CGT allowances available. .
Yes


Sorry, but I probably didn't provide all the relevant information in my initial post. My Sis and I aren't the only beneficiaries - we each receive 20% of the estate, and my two children (the only grandchildren) have each been left 30% in trust.
Not sure how this affects things?

John_Pierpoint

I'm dealing with my late fathers estate. There is no IHT to pay as it is about £130K under the £650k limit (we transferred my late mothers full nil rate band). I completed the IHT205 and got the grant back in June.

Sorry I miss read the above paragraph. When I last had to go through this procedure it was soon after the transferable nil rate band concept had been created, and back then one had to completer IHT400, in effect calculating the amount of inheritance tax that would not be being paid because of the transferable nil rate band.
Presumably the tax man got a bit sick of trawling through these complicate returns only to discover the tax on offer was a big fat zero; so the procedure got simplified to "If you are sure there is no IHT just fill in the "excepted estate" IHT205 paperwork" [and if it looks borderline we might investigate].
http://www.hmrc.gov.uk/cto/IHT205_2.pdf

So back to the possibility of Capital Gains Tax, if not now then some time in the future:

Tell us about the trust for the two grandchildren.
I am really getting confused.
we each receive 20% of the estate, and my two children (the only grandchildren) have each been left 30% in trust.
?!?
It appears that not you but your children have the majority beneficial interest in two properties and £24k of savings?.

You need to quote the exact wording of the will, so we can work out what sort of trust has been created.

How old are these two grandchildren?

madbadrob

Based on the last post your sister wont be able to have house b as her inheritance unless house a and the other monetary sums add up to 80% of the total estate

Rob

silvermum

NAR wrote: »

I'll leave question 1 to others.

Regarding questions 2 and 3 you listed the property at £100k. Just because the mid estimate is now £120k doesn't mean that will be achieved. I'm sure £110k/£115k is covered by estimates you hold, so if you are content that is the value of the "sale" then let your sister receive that value in kind as part of her settlement.

Just to reply to this - one problem is that I am not really 'content' that it is a 'fair' market value. All the estate agent valuations and discussions suggest achieving £120k with 'upside potential' to £130/£135k, and even the reserve auction price suggested was £115k.
Sis is pushing to reduce it even further to £110k because it obviously suits her have it as low as possible. (We are planning to put a charge on the property for the remainder, as she doesn't have any cash to 'buy out' the difference).
How do you finally agree a value for transfer to a beneficiary if there hasn't been an 'official' valuation for IHT/ probate?

And to reply to madbadrob - she can just about 'afford' to have it within her inheritance (with a charge on the property for the difference) but it is 'tight', and hence her haggling... (which is causing me a lot of stress!)

silvermum

John_Pierpoint:

I'm not sure which bit of the will to post - it's long!
I'm sure the solicitor I first spoke to said it was a discretionary will trust?
Nothing is specifically left in the will to names individuals, so it all goes into the estate residue to be divided up by the executors.
And yes, my children have the majority beneficial interest (30% each) in an estate worth (approximately) £525 after liabilities, and comprising:
Property A: £230k
Property B: £120k
Cash/savings: £150k
Shares:£25k

The children are 14 and 10 and it's in trust until they are 21.
Does that make it clearer?

madbadrob

If you and your sister are executors then it is down to you both to agree what a fair price is. Ignore the auction price and the prices that it could realise. Auction is lower than retail in the main and the realisation prices are based on what the market may do. Using the figures you have been given then a fair market value would be £120k. For the sake of a few pounds would it not be better to let her have it for the 110 which would be her total share anyway. It saves arguments, means the family house stays in the family and you dont have huge selling fees etc. On the figues you state the children would lose 3k each and you 2k which in the bigger picture is pennies. What would your parents say is probably something you should maybe consider here

Rob

John_Pierpoint

silvermum wrote: »

John_Pierpoint:

I'm not sure which bit of the will to post - it's long!
I'm sure the solicitor I first spoke to said it was a discretionary will trust?
Nothing is specifically left in the will to names individuals, so it all goes into the estate residue to be divided up by the executors.
And yes, my children have the majority beneficial interest (30% each) in an estate worth (approximately) £525 after liabilities, and comprising:
Property A: £230k
Property B: £120k
Cash/savings: £150k
Shares:£25k

The children are 14 and 10 and it's in trust until they are 21.
Does that make it clearer?

Nothing is specifically left in the will to names individuals, so it all goes into the estate residue to be divided up by the executors.

So how do you and your sister know what your shares are ?

The children are 14 and 10 and it's in trust until they are 21

If the children are not actually named in the will, what is the phrase that makes you know the magic age that will end the trust (rather than 18/25/45 for example)? .

What is the date of the will ?

We really do need to know how it phrases the bequest to the two under age grand children.

silvermum

John
Sorry - I meant that specific properties or items weren't directly left to named individuals e.g. the flat to me, and the house to my sis.

OK - here's what the will says:
MY TRUSTEES shall out of my ready money and the clear monies
to arise from the said sale calling in and conversion pay or provide for
my debts and funeral and testamentary expenses and all legacies
bequeathed by this my will or any codicil hereto and my Trustees
shall stand possessed of the residue of the monies and of the
property and investments for the time being representing the same
and of such parts of my said property and assets as shall for the time
being remain unsold and unconverted (hereinafter called 'my
residuary estate') UPON THE FOLLOWING TRUSTS:-

a) as to a one fifth share thereof for <MY LATE MOTHER>
absolutely PROVIDED THAT if the said <MY LATE MOTHER>shall have
predeceased me then my Trustees shall hold this part of my residuary
estate UPON TRUST for <Grandchild 1> of <Address> and <Grandchild 2> if and when they attain the age of 21 years and if more than one in equal shares absolutely
b) as to a one fifth share thereof for the said <Grandchild 1> absolutely
c) as to a one fifth share thereof for the said <Sister’s name> absolutely
d) as to the a one fifth share thereof for the said <MY NAME> absolutely
e) as to the remaining one fifth share to <Grandchild 2> absolutely

7. DURING THE MINORITY of any beneficiary that may have a
vested or contingent share in my estate any part of the capital or
income (or of both capital and income) of the vested or contingent
share of such infant beneficiary may be applied for the maintenance
education advancement or benefit of such infant beneficiary in the
absolute discretion of my Trustees who may in their absolute
discretion either so apply the same themselves or pay the same to
any parent or guardian of such infant beneficiary to be applied in
manner aforesaid and in such case the receipt of the person to whom
payment is so made shall be a sufficient discharge to my Trustees

madbadrob

That will is specific. The properties are to be sold and then converted into money. Therefore unless a deed of variation is taken out the sister cannot buy the house unless she has the money to do so first. The deed of variation would need to be taken out saying that the house is given to the sister so long as she pays to the estate x amount of money. The x being the difference between the value of the house and her share

Rob