Probate house valuation error means unnecessary CGT?

Thrugelmir

SeniorSam said:

 Even an RICS value is only an assumption and often those values are exceeded or not achieved. 

Far from being an assumption. It's a full report on the property and contains details of the quantified comparables that the surveyor has used in arriving at the market value at the date of death. The probability is the HMRC / District Valuer will accept the valuation without query. 

stig

There’s a misunderstanding here,

when you do the CGT Calculation, the valuation at the  of death is your base cost. This might be the cost you reported for IHT  purposes, but only if that value was ‘ascertained’  -  a quick look at the CGT guidance makes  it clear that an IHT value is only ascertained if the value is actually a material factor in calculating an actual IHT charge. 

In this case the exact value was irrelevant, it simply established that the property couldn’t be worth enough to give rise to an IHT charge. It wasn’t ‘ascertained’ for IHT purposes.  So you are welcome to use the actual value at acquisition - and, for example, the sale value less average property price increases in the immediate area for the holding  period would be an acceptable way of arriving at that.

but to be clear -reporting a maximum possible value for IHT purposes just to show the estate isn’t liable for IHT does not bind you to that valuation in any subsequent CG calculation.


A value cannot be regarded as `ascertained’ unless HMRC PT - Trusts and Estates IHT have used that valuation in order to arrive at a final charge to Inheritance Tax and the precise amount of the liability was dependent on that valuation. Furthermore in cases where the liability to IHT is relatively small, in order to avoid the need for expensive valuations which have little effect, HMRC – Trusts and Estates IHT may make it clear to the personal representatives or agents that the value has not been agreed, and therefore has not been ‘ascertained’..

SeniorSam

......................... But as box K still does not exceed the Inheritance Tax nil rate band there is no need to tell us about the change.

SeniorSam

I AM WRONG
Although in this instance alone, I believe that speaking with HMRC in relation to this actual matter may improve matters, so try it as soon as possible on their helpline.

Having looked this up more specifically, I now see that '..................

'The assets that were owned by the deceased at the date of death are treated as though they had passed to the personal representatives at the date of death at their market value at that date. This value is the ‘cost’ or acquisition value.'

The term 'Market Value' is a joke. It is always an estimate.  Always better to submit a higher value than a lower one

Annual Exemption Allowance to personal representatives

The full amount of the AEA is allowed to personal representatives for the:

period from the date of death to the following 5 April (no matter how short this period is

2 tax years following the year of death

This may help if you find that HMRC will not act in a fair way.

·        Expenses incurred by personal representatives

Personal representatives incur legal and other expenses in the administration of the estate, for instance, in obtaining a grant of probate. If they sell or dispose of some of the assets of the estate, then some of that expenditure may be allowable in calculating the gains or losses. Because of the way solicitors charge for their services, it’s often difficult to isolate the allowable expenditure from other expenditure which isn’t allowable.

We’ll accept calculations which include deductions for costs of establishing title which are based on a published scale. The scale is published as Statement of Practice SP02/04 (for deaths after 6 April 2004).

Personal representatives are entitled to claim the actual expenditure where this is known.

This expenditure is only available where the personal representatives dispose of assets.

If payment is demanded, make sure you claim all expenses of selling

    Although a Variation of the Will could be considered, the cost of doing that may outway the saving.

My apologies to you and other members for jumping in too quickly on this, but with this particular case it would be most unfair to charge CGT on the increase from valuation to sale price, assuming the sale goes through, so do try and call them to discuss it.

Sam

richyhill

Some really useful points highlighted in this thread. Thanks for all the input. I'm still confused as hell, but I have more avenues to look into!

There appear to be three rough lines of thought.

1) The IHT/probate valuation is concrete and one must pay CGT on any "increase" regardless of errors made.

2) Use a more official market value estimation (i.e. RICS) at date of death for the purposes of CGT

3) Use the sale price as the market value (with potential adjustment for average local property increases over the period between death and sale)

From reading around, HMRC would certainly be on my case if my grandfather's property valuation I'd submitted was at the IHT threshold and then sold for another £75k as they'd accuse us of undervaluing it for IHT purposes. So it doesn't seem that the original estimation is immutable.

From @stig 's point (that the IHT value is not "ascertained"), it would seem that it's possible to use another valuation method for the purposes of CGT. It then comes down to whether or not HMRC would accept this valuation. After all, I need to justify the original "market value" estimate increasing in order to pay less CGT (which would likely draw some attention).

From speaking to various people (and from some of the comments on this thread) it certainly doesn't objectively feel right to be forced to pay such a large sum of tax based on essentially a guess .vs. the real sold price. It's a strange game to play. But how this plays out in reality I don't know. I'll give HMRC a call and try and suss them out.

@SeniorSam Thanks for clarifying your original position. I'll report back with what HMRC say.

BooJewels

I wish you luck @richyhill - I'm perhaps a month ahead of you and I've spoken to HMRC three times now and have just received the paper form in the post - and it still doesn't appear to be the right one - despite a detailed conversation with the CGT technical team member who sent it to me.

I have no idea why they have to make it all so complicated.  Especially when it's a tax many people volunteer to pay and process themselves.  

SeniorSam

Thanks richyhill. I feel that where IHT is not a problem with a lower value estate, then giving a possibly higher valuation, within reason. would be better as it may prevent a higher sale and CGT to pay.  In my opinion it is not a fair way for the Revenue to act.

Again, where IHT is to be paid, then give a good value and pay the higher rate knowing that a lower sale would enable a refund to be applied for even though it may take time. However, you will alrady know if the sale is higher then the extra needs to be paid

Full Valuations are also rather expensive, with no guarantee that they will not be exceeded , so having a good knowledge of the area and what houses sell for may help and the local estate agent who is looking for instructions to sell may well discount the valuation fee, if there is one,  if he gets to instruction to sell.

I can agree with IHT when there are such good allowances now, but the way HMRC deal with the CGT on these small changes is just like cheating at cards. There is no REAL GAIN when an actual sale price is trying to be estimated and as long as the estate is not going to be paying IHT, then these changes should be allowed when a sale is made within 6 months of the Probate.

Sam

Eek_Bears

If the sale of the house is imminent you might want to think if there’s any advantage in it being in this tax year or next tax year. Is your dad realising any other gains? Are the allowances changing etc?

BooJewels

Chances are, that if he's just had an offer, it won't complete until well into the next tax year anyway - if my own experience and others I know of selling at the moment is anything to go by.  There's still delays and backlogs at every stage of the process - and we weren't in any kind of chain - it still took 5 months.

getmore4less

The key here is as the value has not been ascertained a new value can be use for the CGT for the value at DOD.

you can ask HMRC in advance of the actual sale.

The actual sale price cannot be used if there have been market movements and that is happening in a lot of areas.

As time goes by there will be more evidence of any market moves as the actual sold prices filter through to give  better estimates of the DOD value.

use this tool, in my area Dec data is coming through
https://www.rightmove.co.uk/house-prices.html

Forward adjustment may be needed as the sold data lags the offers by a week/months

With the amount at stake a RICS valuation may be worth it, we had one done under £500(but got for free in the end) for a unique property, if this is something more generic probably less.