Probate house valuation error means unnecessary CGT?

poppystar

I may not be totally correct here so hopefully someone will come along and clarify..but, if your father inherited the house and it was changed to his name pre sale and if he is a basic rate tax payer then isn’t it 18% rather than 28% if he sells it as his own? A lot of ifs there and there maybe a cost of transferring ownership or it might be too late. Just a thought. 

BooJewels

That's a good point @poppystar - I don't know about it needing to be in his own name first, but as an individual beneficiary, you're possibly right, he might only need to pay 18% as a basic rate tax payer.  In which case, the CGT on the £75k increase, would be a little over £10k.  That's certainly something to look into.

SeniorSam

richyhill ...................There should not be a problem. Even an RICS value is only an assumption and often those values are exceeded or not achieved. The purpose of the value was in respect of inheritance tax. Based on the price achieved, if inheritance tax is not payable, that should be an end to it. 

A value was submitted that an estate agent gave and it is reasonable for this to be done. I would not expect to be paying any CGT on the difference and would certainly contest any claim for CGT under these circumstances.  There has not been an GAIN. The grandfather past away, the property was sold for what could be obtained and that price is IT.

Nobody has made a profit here and I am surprised that anyone could consider that it was.

Sam

poppystar

SeniorSam said:

richyhill ...................There should not be a problem. Even an RICS value is only an assumption and often those values are exceeded or not achieved. The purpose of the value was in respect of inheritance tax. Based on the price achieved, if inheritance tax is not payable, that should be an end to it. 

A value was submitted that an estate agent gave and it is reasonable for this to be done. I would not expect to be paying any CGT on the difference and would certainly contest any claim for CGT under these circumstances.  There has not been an GAIN. The grandfather past away, the property was sold for what could be obtained and that price is IT.

Nobody has made a profit here and I am surprised that anyone could consider that it was.

Sam

So those of us who have duly paid CGT on the difference between probate value and sale value following advice and guidance from HMRC paid tax we should not have?

BooJewels

I was on the phone to an HMRC CGT technical adviser on Tuesday for some time and he certainly thought we needed to pay it.  The conveyancing solicitor also advised that we'd probably need to pay it too, but it was beyond their remit to advise further.

SeniorSam

Well I would personally challenge any CGT expected in a similar situation as made by the PO.

As for others, each situation needs looking at. A valuation for Probate is mainly about inheritance tax and the fact that there is a know difference very likely to occur between Probate valuation and sale price, assuming there is no undue delay in selling the property, but not a gain in this particular case.

However, if there was a difference that affected the amount of inheritance tax payable, then that would need to be adjusted with the Revenue, UP or DOWN.

In this case, the executors have done everything correctly and tried to offer the house for sale as soon as they could. An approximate value was given by an Estate Agent and we all know how far out they may be.  Assuming the sale is higher where IHT was payable then the revenue expect the executors to pay the additional tax but in this case it would be totally unfair for the revenue to expect CGT based on the estate agents figure where no IHT liability actually exists.

poppystar

In this case, the executors have done everything correctly and tried to offer the house for sale as soon as they could. An approximate value was given by an Estate Agent and we all know how far out they may be.  Assuming the sale is higher where IHT was payable then the revenue expect the executors to pay the additional tax but in this case it would be totally unfair for the revenue to expect CGT based on the estate agents figure where no IHT liability actually exists.

And yet they do...

of course the acid acid test would be if OP does not attempt to change the value used for probate and uses a different higher figure to calculate there is no CGT liability and HMRC apply a bit of joined up thinking and check back to the probate value whether they then come back to OP’s father and claim there is tax to pay. Worse case scenario being they fine then for late payment which would probably make OP feel worse than he does now. 

theoretica

Did you fill in form IHT400 or 205?

If 205 look what I found on page 26 'What to do if the value of the estate changes'

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1040951/IHT2062011.pdf

(edited to change version of document to 2011-2021)

with my bold...

"If, after you’ve got the grant of representation, you
find some more assets, or you discover that the
value of an asset has changed – for example, the
house or some personal goods have been sold for
a different figure"

SeniorSam

theoretica said:

Did you fill in form IHT400 or 205?

If 205 look what I found on page 26 'What to do if the value of the estate changes'

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1040951/IHT2062011.pdf

(edited to change version of document to 2011-2021)

with my bold...

"If, after you’ve got the grant of representation, you
find some more assets, or you discover that the
value of an asset has changed – for example, the
house or some personal goods have been sold for
a different figure"

ALL of page 26 relates to inheritance tax. There is no inheritance tax liability, so it does not apply.

See - For example, if all the assets passed to the surviving spouse, box K on form IHT205(2011) should show '0'. But if the spouse redirects £100,000 to their children, you should reduce the exemption shown in box J by that amount and rework the answer in box K. But as box K still does not exceed the Inheritance Tax nil rate band there is no need to tell us about the change.

theoretica

SeniorSam said:

theoretica said:

Did you fill in form IHT400 or 205?

If 205 look what I found on page 26 'What to do if the value of the estate changes'

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1040951/IHT2062011.pdf

(edited to change version of document to 2011-2021)

with my bold...

"If, after you’ve got the grant of representation, you
find some more assets, or you discover that the
value of an asset has changed – for example, the
house or some personal goods have been sold for
a different figure"

ALL of page 26 relates to inheritance tax. There is no inheritance tax liability, so it does not apply.

See - For example, if all the assets passed to the surviving spouse, box K on form IHT205(2011) should show '0'. But if the spouse redirects £100,000 to their children, you should reduce the exemption shown in box J by that amount and rework the answer in box K. But as box K still does not exceed the Inheritance Tax nil rate band there is no need to tell us about the change.

If it did not apply at all, why would it include: 'If you calculate that there is still no tax to pay...'?