One beneficiary buying out another's share of an inherited property - tax and other implications

naedanger

I am the executor for an estate that has been left in equal shares to two beneficiaries. One of the assets is a house.

I am planning to value the house myself (there are many very similar houses nearby) and err on the high side since the estate is not near the limits for paying inheritance tax.

The first beneficiary plans to sell their own house and move into the property they are inheriting a 50% share of. They will buy out the second beneficiary’s share of the property at less than market value and at quite a bit less than the value that will be shown in the asset inventory.

I understand that the second beneficiary is therefore giving a gift to the first beneficiary. (And if the second beneficiary dies in the next 5 years or so there may be an inheritance tax consequence for their estate.) However are there any other tax considerations or any potential pitfalls in this arrangement?

Also is it permissible for an executor to place their own (non expert) valuation on a house? I would state the estimate was mine in the asset inventory. And the estate falls far short of the inheritance tax limits.

The estate is in Scotland if that matters.

 

Marcon

This sort of DIY approach is understandable but not a great idea, given the plans the two beneficiaries have. Get some proper professional advice - this isn't the best way to do it and is fraught with avoidable risks.

naedanger

Marcon said:

This sort of DIY approach is understandable but not a great idea, given the plans the two beneficiaries have. Get some proper professional advice - this isn't the best way to do it and is fraught with avoidable risks.

Care to give some examples of the risks. I am not seeing any.

xylophone

Is it possible to vary the will such that the house goes to one beneficiary and the other assets to the other?

Keep_pedalling

The house valuation needs to be accurate, not a high end guesstimate that could see one beneficiary paying more the 50% of the value of the house to buy the other one out.

AnotherJoe

naedanger said:

Marcon said:

This sort of DIY approach is understandable but not a great idea, given the plans the two beneficiaries have. Get some proper professional advice - this isn't the best way to do it and is fraught with avoidable risks.

Care to give some examples of the risks. I am not seeing any.

Well for a start the one who sold their share at less than market price might later make a claim they were conned into doing it and make a claim against you. 

And they (or both) might make a claim that the house was falsely valued by you and they didn't understand this. For the sake of a few pounds get either a professional valuer or use the average of three EAs making sure they understand you want a true selling price valuation and not the usual high estimate to get your business. They may require payment. Again compared to the house value this isn't going to be high and protects you. 

I also have a couple of suggestions regards the gift element of this 
You transfer the house 50/50 or maybe (say) 60/40 or whatever the other assets allow.
And then let them, separately, come to an agreement on transferring / buying out. That way you are out of the loop and not liable for any later disputes. Nor are you exceeding your authority. 

OR, both beneficiaries do a deed of variation to split the assets is any way they seem fit to agree to, drawn up by a solicitor. That way there is no gift. 

naedanger

Thanks for the answers - very useful. 
I see I didn't give enough information. Sorry.
I actually am not worried about either of the beneficiaries having a claim against me or each other. I know them well enough and I know that everything will be fully transparent to both of them. 
I see the suggestion of a deed of variation does remove the inheritance risk should beneficiary 2 die within a few years.

Edit: That said I am moving to the view that placing my own estimate on the property is not a good idea.

theoretica

The beneficiaries will also want to have an eye on stamp duty, depending on the timing of any sale and if this would be a second property.  A deed of variation might help here too, I believe.

Savvy_Sue

naedanger said:

I am the executor for an estate that has been left in equal shares to two beneficiaries. One of the assets is a house.

I am planning to value the house myself (there are many very similar houses nearby) and err on the high side since the estate is not near the limits for paying inheritance tax.

The first beneficiary plans to sell their own house and move into the property they are inheriting a 50% share of. They will buy out the second beneficiary’s share of the property at less than market value and at quite a bit less than the value that will be shown in the asset inventory.

I understand that the second beneficiary is therefore giving a gift to the first beneficiary. (And if the second beneficiary dies in the next 5 years or so there may be an inheritance tax consequence for their estate.) However are there any other tax considerations or any potential pitfalls in this arrangement?

Also is it permissible for an executor to place their own (non expert) valuation on a house? I would state the estimate was mine in the asset inventory. And the estate falls far short of the inheritance tax limits.

The estate is in Scotland if that matters.

I'm glad you've reached the conclusion that you need a professional valuation. 

someone's mentioned stamp duty: I don't know if it's the same in Scotland but I believe HMRC are reasonably alert to the possibility of house prices being fiddled to reduce the amount due. 

Marcon

naedanger said:

Marcon said:

This sort of DIY approach is understandable but not a great idea, given the plans the two beneficiaries have. Get some proper professional advice - this isn't the best way to do it and is fraught with avoidable risks.

Care to give some examples of the risks. I am not seeing any.

Which probably sums up in a nutshell why you need professional advice. 

Brynsam

naedanger said:

The first beneficiary plans to sell their own house and move into the property they are inheriting a 50% share of. They will buy out the second beneficiary’s share of the property at less than market value and at quite a bit less than the value that will be shown in the asset inventory.

I understand that the second beneficiary is therefore giving a gift to the first beneficiary. (And if the second beneficiary dies in the next 5 years or so there may be an inheritance tax consequence for their estate.) However are there any other tax considerations or any potential pitfalls in this arrangement?

In which case HMRC will treat the second beneficiary as having received full market value for their share of the house and tax them accordingly if there has been a capital gain on the property.

Not 5 years - 7.

So yes, there are tax considerations and other potential pitfalls. Swallow your pride and get some advice.