Value of an inherited asset.

Josh_Wilkin

hi there,
We're currently going through the process of probate after the passing of my mother earlier this year. Approximately a year and a half before she died, she gifted a flat (not her primary residence) to me and my brother. Since gifting us the asset it has gone up in value fairly significantly (I'm not entirely sure why!).
We're currently getting two conflicting opinions on how the flat should be valued in terms of valuing her estate.
Our solicitor believes that the value of the flat for the purpose of valuing the estate should be the current (greater) value - which will obviously mean more tax.
Our mothers accountant believes that the value of the flat for purpose of valuing the estate should be the (smaller) value of the flat when she gifted it to us - which will mean less tax.
Does anyone have any insight on this?
Cheers!

Pennywise

HMRC requires to value to be the market value as at date of death.  You can elect to revalue if you later sell it at a loss to reduce the IHT.
If you "inherit" it at a lower value, yes, you'll pay less IHT, but the "base cost" for capital gains tax will be lower so will pay more CGT when you come to sell it.

Keep_pedalling

Pennywise said:

HMRC requires to value to be the market value as at date of death.  You can elect to revalue if you later sell it at a loss to reduce the IHT.
If you "inherit" it at a lower value, yes, you'll pay less IHT, but the "base cost" for capital gains tax will be lower so will pay more CGT when you come to sell it.

Are you sure? This was a failed PET and I believe it should be the value of the asset at the point of making the gift. 

How was the flat valued when it was gifted? Seems odd that it has seen such a big rise in value over such a short period of time, especially in today’s market. Presumably your mother had a CG liability on the gift so it may have been tempting to go for the lowest possible valuation to keep that bill down at the time. 

Jeremy535897

Keep_pedalling said:

Pennywise said:

HMRC requires to value to be the market value as at date of death.  You can elect to revalue if you later sell it at a loss to reduce the IHT.
If you "inherit" it at a lower value, yes, you'll pay less IHT, but the "base cost" for capital gains tax will be lower so will pay more CGT when you come to sell it.

Are you sure? This was a failed PET and I believe it should be the value of the asset at the point of making the gift. 

How was the flat valued when it was gifted? Seems odd that it has seen such a big rise in value over such a short period of time, especially in today’s market. Presumably your mother had a CG liability on the gift so it may have been tempting to go for the lowest possible valuation to keep that bill down at the time. 

I agree that it is the value at the date of gift that counts for inheritance tax, and for capital gains tax, with one proviso. OP says the flat was not mother's "primary" residence. That could imply it was a secondary residence that she still used after the gift, so that there may have been a gift with reservation.

Josh_Wilkin

To clarify, the flat was not primary residence or a secondary residence that my mother still used after the gift. It was in fact part of her inheritance after my father passed away in 2015 and has a long term tenant.
To answer the question of how was it valued, I believe it was valued by local estate agents both at the time of my fathers passing in 2015 and at the time my mother gifted it to us in late 2018.

Alarae

It's the value at the date it was gifted to you, which as mentioned above is a failed 'Potentially Exempt Transfer' (PET). If your mother did not make any further gifts in either the tax year of the gift or the year before, double check that they are also deducting the annual exemption (£3,000) from the gift. That will reduce the value of the property by a further £6,000, and a tax saving at 40% of £2,400.

It's a tax. Always go with the accountant/tax adviser, not the solicitor. In my experience, they don't always understand the tax side despite saying otherwise.. 

getmore4less

Who got the rent after the gift?