questions regarding IHT205 & PA1P

meat_n2_reg

Hello

Sadly lost my Mom at Christmas , just started looking into sorting Inheritance

As far as I believe my Moms Will has 2 executors me & my sister

The will states that my Moms flat needs to be sold and split between me and my sister

Flat has a short lease currently making current flat value of approx £80k , with the release renewed flat will be worth approx £120
In the valuation of property section IHT205 Q11.8 would I put value of the current £80k or £120k ( as will buy lease ) and would be selling for £120k

Also not sure when I would be able to apply to buy lease , would Probate need to be sorted first ?

Also in form PA1P there is an option to buy a number of copies for Grant of Representation , not sure how many I would need , I am thinking 6 copies should cover but not really sure who would need to have a copy of Grant of Representation ?
Sorry for all the questions first time for me to do this

Thanks for your help

Owain_Moneysaver

The value of the property is at the date of death, ie with the current term of the lease.

If the value increases during the executry of the estate because the lease is bought, there may be Capital Gains Tax payable on the increase.

If the estate is paying IHT then you may be able to get the value at the date of death and the IHT calculation amended, so the gain falls into IHT rather than CGT. I assume if you're using IHT205 this is not the case.

Owain_Moneysaver

6 copies of the Grant should be adequate - most places will copy it and return it. Utilities etc usually don't need it, although they may want a copy of the death certificate.

Banks for moderate amounts will usually work on the death certificate; it's only if you go over their internal limits they need to see the grant. The solicitor handing the lease extension and the sale conveyance will probably keep a copy.

Keep_pedalling

The value you put on probate is the value at the date of death, so in this case £80k. As you have to sell the flat to distribute the estate you can’t extend the lease as only someone who has held the lease for 2 years or more can do that.

The only way round that would be to buy your sibling out of her share and hang on for the required 2 years.

meat_n2_reg

Regarding

" The value you put on probate is the value at the date of death, so in this case £80k. As you have to sell the flat to distribute the estate you can’t extend the lease as only someone who has held the lease for 2 years or more can do that.

The only way round that would be to buy your sibling out of her share and hang on for the required 2 years."


I'm confused now , could I buy the lease now before Probate as really seems unfair if I have to pay CGT on the extra £40k when I buy the lease ....



think I need to see a Solicitor

Owain_Moneysaver

Keep_pedalling wrote: »

The value you put on probate is the value at the date of death, so in this case £80k. As you have to sell the flat to distribute the estate you can’t extend the lease as only someone who has held the lease for 2 years or more can do that.

I'm not sure, but if mother had the right to extend the lease, can the executors of her estate not do so?

Keep_pedalling

meat_n2_reg wrote: »

Regarding

" The value you put on probate is the value at the date of death, so in this case £80k. As you have to sell the flat to distribute the estate you can’t extend the lease as only someone who has held the lease for 2 years or more can do that.

The only way round that would be to buy your sibling out of her share and hang on for the required 2 years."


I'm confused now , could I buy the lease now before Probate as really seems unfair if I have to pay CGT on the extra £40k when I buy the lease ....



think I need to see a Solicitor

You are not going to make a gain of £40k, most of that will go on the payment to the freeholder to extend the lease.

Tom99

meat_n2_reg wrote: »

Hello
Sadly lost my Mom at Christmas , just started looking into sorting Inheritance
As far as I believe my Moms Will has 2 executors me & my sister
The will states that my Moms flat needs to be sold and split between me and my sister
Flat has a short lease currently making current flat value of approx £80k , with the release renewed flat will be worth approx £120
In the valuation of property section IHT205 Q11.8 would I put value of the current £80k or £120k ( as will buy lease ) and would be selling for £120k
Also not sure when I would be able to apply to buy lease , would Probate need to be sorted first ?
Also in form PA1P there is an option to buy a number of copies for Grant of Representation , not sure how many I would need , I am thinking 6 copies should cover but not really sure who would need to have a copy of Grant of Representation ?
Sorry for all the questions first time for me to do this
Thanks for your help

[FONT=Verdana, sans-serif]Providing your mother owned the flat for at lease 2yrs before she died, you as executor of her will have 2yrs from the grant of probate in which to serve a section 42 statutory lease extension notice.[/FONT]

[FONT=Verdana, sans-serif]You will need an RICS surveyor to help you with the values and negotiating of the lease extension and you may as well appoint one soon because you will need a value of the current lease for probate and this will also be your starting point for any CGT payable by the estate when the property is sold..[/FONT]

[FONT=Verdana, sans-serif]As executor you could also sell the current lease but with the Section 42 Notice already served (after exchange of contracts) so the purchaser can immaterially take forward the lease extension at their cost.[/FONT]

[FONT=Verdana, sans-serif]What is the term remaining on the lease and what is the ground rent?[/FONT]

[FONT=Verdana, sans-serif]You say the lease is currently worth £80,000 but unless you are a lease extension specialist you cannot be sure of that. That is why an RICS valuation as at DOD is important.[/FONT]

[FONT=Verdana, sans-serif]If your figure were right and the value would increase from £80,000 to £120,000 that would mean the current short lease would have only about 46yrs left, you would pay about £27,000 to extend the lease, plus both sides costs so probably at least £30,000. If you then sell for £120,000 your gain after costs will be less than £10,000 so within the estates CGT allowance of £11,700 providing you sell within 2yrs of DOD. (Obviously these figure will alter depending on the actual terms of the lease)
[/FONT]

meat_n2_reg

Hello

Thanks for the replies

The value of the flat will be approx £120k with full lease

The value of the flat will be approx £80k with the 43 year lease

I don't know how much the cost will be extend lease

If for example cost to extend lease is £20k

If I was to tell sell flat for £120k would have already spent £20k so real value now £100k
So Me and my sister would have to pay Captial gains tax on the £120k - £80k = £40k @ 40% = £16K

If the above example the real value would be £100k - £16k = £84k

If thats the case might be just better to get £80K with 43 year lease ?
Or have I got things wrong ?
The cost of buying the lease extension is key figure ?
Also as me and my sister are new owners could we use my and my sisters annual Capital gains allowance to reduce CGT ? ( 2 * £11700 = £23400) meaning CGT would be 40% of £16600 = £6640


Many thanks for your help

Tom99

meat_n2_reg wrote: »

Hello
Thanks for the replies
The value of the flat will be approx £120k with full lease
The value of the flat will be approx £80k with the 43 year lease
I don't know how much the cost will be extend lease
If for example cost to extend lease is £20k
If I was to tell sell flat for £120k would have already spent £20k so real value now £100k
So Me and my sister would have to pay Capital gains tax on the £120k - £80k = £40k @ 40% = £16K
If the above example the real value would be £100k - £16k = £84k
If that's the case might be just better to get £80K with 43 year lease ?
Or have I got things wrong ?
The cost of buying the lease extension is key figure ?
Also as me and my sister are new owners could we use my and my sisters annual Capital gains allowance to reduce CGT ? ( 2 * £11700 = £23400) meaning CGT would be 40% of £16600 = £6640
Many thanks for your help

[FONT=Verdana, sans-serif]You will have to pay more than £20,000 to extend a 43yr lease, at least £30,000 with fees I would guess.[/FONT]

[FONT=Verdana, sans-serif]So CGT will be £120,000 less estate agent/solicitor say £2,000 less lease extension £30,000, less £80,000 probate value, so a gain of £8,000. Then less the estates £11,700 annual allowance so no CGT.[/FONT]

[FONT=Verdana, sans-serif]At the moment the estate, not you and sister, own the property. The estate is a separate legal and tax entity.[/FONT]

[FONT=Verdana, sans-serif]If you transfer the property to you and sister I am not sure whether you can still serve a section 42. You would need to check that.(I don't think you can, only personal representatives can serve a S42)[/FONT]

[FONT=Verdana, sans-serif]If CGT was an issue you could transfer the property to the two of you after the estate has served the Section 42 Notice.
[/FONT]
[FONT=Verdana, sans-serif]The 43yr lease will be un-mortgageable so only a cash buyer will buy what you have at the moment. You may very well struggle to get £80,000, or find any buyers at all.[/FONT]

[FONT=Verdana, sans-serif]NB: CGT on residential property is 18% or 28% not 40%. The estate pays CGT at 28%
[/FONT]

Yorkshireman99

Tom99 wrote: »

[FONT=Verdana, sans-serif]You will have to pay more than £20,000 to extend a 43yr lease, at least £30,000 with fees I would guess.[/FONT]

[FONT=Verdana, sans-serif]So CGT will be £120,000 less estate agent/solicitor say £2,000 less lease extension £30,000, less £80,000 probate value, so a gain of £8,000. Then less the estates £11,700 annual allowance so no CGT.[/FONT]

[FONT=Verdana, sans-serif]At the moment the estate, not you and sister, own the property. The estate is a separate legal and tax entity.[/FONT]

[FONT=Verdana, sans-serif]If you transfer the property to you and sister I am not sure whether you can still serve a section 42. You would need to check that.(I don't think you can, only personal representatives can serve a S42)[/FONT]

[FONT=Verdana, sans-serif]If CGT was an issue you could transfer the property to the two of you after the estate has served the Section 42 Notice.
[/FONT]
[FONT=Verdana, sans-serif]The 43yr lease will be un-mortgageable so only a cash buyer will buy what you have at the moment. You may very well struggle to get £80,000, or find any buyers at all.[/FONT]

[FONT=Verdana, sans-serif]NB: CGT on residential property is 18% or 28% not 40%. The estate pays CGT at 28%
[/FONT]

It really shows that the executors must get professional advice on how to maximise the benefits an minimise taxes. A few hundred pounds initially should be profitable. Certainly not a task for a novice on their own.