Probate and CGT to beneficiaries: changing residentional property valuations after probate granted

planckfund

(thread moved from 'cutting tax')

I am executor for my mum who died late 2019. Beneficiaries are me and my two sisters. The main asset was my mum's home, a rather unique wooden hut in an seaside resort, in consequence a very difficult property to value. Estate agent (a chartered surveyor) put his finger up in the air and said he had no idea but reckoned 180 to 250,000. I valued the house at death at £250, 000 for probate purposes out of a total estate of less than £300,000, which was granted. In retrospect this was way too low but the estate will be well below inheritance tax level in any case.  We now, 15 months later, after covid-related delays etc, are about to sell the property at  perhaps £350,000. I believe that we have a number of choices, according to the HMRC website and advice sheets (which are mostly excellent).

1. Sell the house from the estate --- which will then treat the difference as capital gains, and attract CGT at 28 pct, so about £24,0000 in tax

2. Transfer the house to the beneficiaries (at value at death) and sell as joint tenants and be able to take advantage of beneficiaries' CGT alllowances - we are all basic rate tax payers well below basic tax rate thresholds with (probably) no other capital gains this year so that would mean gain of £100k - (3 x12.5k) = £62,500  =total capital gains tax at 10 pct of £6,250 ie £2,083 per beneficiary cgt tax liability.

3. Get HMRC to agree that the valuation was too low and agree a higher figure for probate purpose, for example the open market sale price, or that less (say) 10 pct house price appreciation for the term from death to house sale if they're picky, which would then result in a gain of (say) 20,000 and total CGT of £5,600 or so.

4. Get HMRC to agree  the valuation was too low as per 3 and also transfer the house  ("assent") to beneficiaries, as per 2 which should reduce the CGT liability to zero or near-zero.

Neither my sisters (or myself) are wealthy so these figures make a difference and I feel responsible for creating the issue at all! Any opinions? Has anyone had any experience with HMRC agreeing to retrospectively agree a higher valuation for a property? Any problems? I obviously incline to option 4, which the conveyancer can't foresee any problems with. Any other options?

Thanks for any advice, shared experiences!

Keep_pedalling

I think after 15 months it is going to be difficult to get HMRC to agree to a higher valuation, but it is worth a try. You will need to provided evidence, which may require you to pay a RICS surveyor to give a valuation at the date of death.

The COVID pandemic may have contributed to the higher price you are possibly going to get, the demand for UK holidays has rocketed and that is going to have a knock on effect to property prices in holiday destinations. The house also sounds quite quirky, and people will pay quite a lot of money for something a little unusual.

I would certainly get the house transferred without delay, which will reduce any tax bill considerably whatever else happens. Also don’t beat yourself up about this, you did the sensible thing in putting in the higher figure you were given by the estate agent, and all the beneficiaries are going to be receiving considerably more than they originally thought they were going to be getting.

planckfund

Thanks --- there's not much on the interweb about this issue --- and usually the warning is that HMRC might come after you 2 years later if you valued the property too low in order to escape inheritance tax ---- it would seem fair for this to work the other way too....  especially with unusual property like this.

To be fair, it is certainly the case that demand is through the roof over the past few weeks and the Valuation Office or whoever could say that the appreciation is basically real, as you say. At any rate this shouldn't hold up the sale.

Funny how your attitude changes when you assume the weight of  responsibility for your family as an executor.... I appreciate your words of comfort!

poppystar

I lost too many hours trying to resolve this in my own case. The conclusion seemed to be that if no IHT was due then HMRC won’t look at revaluing. At least you can transfer the property to beneficiaries in order to use more than one CGT allowance. 

In the end I just sucked up the loss caused by undervaluing. In fairness though I had used the average of three EA estimates before completing the IHT forms. I did, however, feel that the property was possibly undervalued which is why I subsequently got another EA to look at it and the property went on the market at a higher value, achieving much more than the initial estimates. A large element was finding a buyer willing to take on the work needed on the house and in return get a much bigger plot of land than neighbouring houses. The first EAs thought that unlikely, the last probably initially over valued it as they emphasised the land. It’s one of those things where I’ve learnt a lesson I’m unlikely to ever be in a position to use ie. if in doubt go for a higher figure if there is no IHT to pay anyway.

The market last year was so pretty strange too and so any retrospective RCS valuation could go either way. Looking around at increases over the year they seemed to vary from about 8% to 33% in the area depending on type of property but then if the property is unusual in any way (requiring work, large plot, unlike any neighbouring properties etc) it is unclear which would apply.

Yes, it is an expensive loss but paying up and moving on, letting go of the hassle was a much better strategy in the end. I can see that you feel responsible to the beneficiaries but hopefully they will be grateful for the work you have done and for their inheritance. 

planckfund

@poppystar - commiserations and  thanks for sharing your experience. As far as the property is concerned it needs a lot of work (new roof  and full refurb) but even allowing if it was ruled that there had been 30 pct appreciation in 15 months (while empty and unmaintained I would add),  this would only leave us pretty much where we are with capital gains so I shall do what I can and accept the outcome philosophically --- I agree, there really are more important things in life....