Gross value for probate 19 May at 10:58AM edited 19 May at 11:29AM in Deaths, Funerals & Probate 13 replies 519 views

shiraz99

I'm currently about to complete the online probate application for my Dad's estate, and whilst I've got my head around how the estate should be valued for IHT etc, I'm still struggling as to what goes down as the Gross value for probate.

A quick summary; My parents made up mirror wills with a life interest of a right to occupy in them for the surviving spouse, with the property eventually going to myself and siblings. They also became Tenants in Common to enable this. Mum  passed in 2018 and my Dad recently.

Should the gross value for probate include the full value of the property or just his 50% share outside the life interest?

My worry is what happens with CGT further down the line.

Dave_5150

shiraz99 said:

I'm currently about to complete the online probate application for my Dad's estate, and whilst I've got my head around how the estate should be valued for IHT etc, I'm still struggling as to what goes down as the Gross value for probate.

A quick summary; My parents made up mirror wills with a life interest of a right to occupy in them for the surviving spouse, with the property eventually going to myself and siblings. They also became Tenants in Common to enable this. Mum  passed in 2018 and my Dad recently.

Should the gross value for probate include the full value of the property or just his 50% share outside the life interest?

My worry is what happens with CGT further down the line.

I presume Mum's 50% transferred to Dad in 2018? - in which case it would be the full value of the property

NorthYorkie

Only his 50% share.  When the property is sold you and your siblings will have a capital gain on the excess of sale price (less costs of sale) over the sum of a) market value of a 50% holding at the date of your mother's death and b) the market value of a 50% holding at the date of your father's death. It could well be that there is little or no tax to pay due to the availability of the annual exemptions for each sibling and the growth in value since 2018.

shiraz99

NorthYorkie said:

Only his 50% share.  When the property is sold you and your siblings will have a capital gain on the excess of sale price (less costs of sale) over the sum of a) market value of a 50% holding at the date of your mother's death and b) the market value of a 50% holding at the date of your father's death. It could well be that there is little or no tax to pay due to the availability of the annual exemptions for each sibling and the growth in value since 2018.

How does this work in reality given that we have no record of the value of the house at the time of my mum's death?

Although, I'm sure you're right, the house value would've had to increase substantially in the past 4 years to outpace 3 unused, annual CGT exemptions in that period. 

greyteam1959

Surely the property should have been valued when you mum died.
Along with the household contents.

Savvy_Sue

greyteam1959 said:

Surely the property should have been valued when you mum died.
Along with the household contents.

Well, it probably should have been, but if probate wasn't needed at the time - and it often isn't on the first death - then why would you? And the value of the household contents is usually negligible in the grand scheme of things, unless mum had expensive tastes in jewellery ... 

However, I believe there are sites and companies who can give you ballpark historic values, especially if it's a fairly standard property. 

Keep_pedalling

greyteam1959 said:

Surely the property should have been valued when you mum died.
Along with the household contents.

It does not really matter what the value was at the time, for IHT purposes the life interest trust is treated as thought it is an outright gift to the surviving spouse so has spousal exemption from IHT. On the death of the 2nd spouse the executor declares the share of the house owned by the deceased and in addition has to declare their interest in the trust.

So although the OP only needs to declare half the house value the other half has to be declared against his beneficial interest in the trust (see IHT 418). So effectively the whole value of the house forms part of their gross estate it is just put into 2 asset classes.

shiraz99

Keep_pedalling said:

greyteam1959 said:

Surely the property should have been valued when you mum died.
Along with the household contents.

It does not really matter what the value was at the time, for IHT purposes the life interest trust is treated as thought it is an outright gift to the surviving spouse so has spousal exemption from IHT. On the death of the 2nd spouse the executor declares the share of the house owned by the deceased and in addition has to declare their interest in the trust.

So although the OP only needs to declare half the house value the other half has to be declared against his beneficial interest in the trust (see IHT 418). So effectively the whole value of the house forms part of their gross estate it is just put into 2 asset classes.

But I'm referring to the gross estate value for probate, not the gross for IHT. Does this include the full value of the property or not as @NorthYorkie suggests?

shiraz99

From the Gov website:

How to work out the gross value for probate

Work out the gross value of the estate for Inheritance Tax and then subtract the value of all of the following:

• assets that were owned with someone else (‘joint assets’) and that are being passed to the surviving owner
• gifts that were made in the 7 years before they died
• assets that were owned abroad (for example, overseas property or money in foreign bank accounts)
• assets held in a trust

So my question really, is a right to occupy/life interest/IPDI or whatever it's called classed as  "assets held in a trust" or does that just relate to things like trust funds and the like?

NorthYorkie

I seem to have misread your question. For IHT purposes your father is regarded as owning the whole of the property; one-half outright plus he is 'deemed' to own the remaining half by virtue of his life interest. 

The values for IHT and Probate are different; Probate is concerned with the value of property which passes under the will. Some property which is treated as part of the estate for IHT purposes does not pass under the will, but by operation of law, e.g. property held as a joint tenant which automatically passes to the surviving owner(s) and a life interest in property held in trust which passes according to the provisions of the trust deed.

So, you take the gross value for IHT and deduct the value of property which does not pass under the will to arrive at the gross value for probate.

shiraz99

NorthYorkie said:

I seem to have misread your question. For IHT purposes your father is regarded as owning the whole of the property; one-half outright plus he is 'deemed' to own the remaining half by virtue of his life interest. 

The values for IHT and Probate are different; Probate is concerned with the value of property which passes under the will. Some property which is treated as part of the estate for IHT purposes does not pass under the will, but by operation of law, e.g. property held as a joint tenant which automatically passes to the surviving owner(s) and a life interest in property held in trust which passes according to the provisions of the trust deed.

So, you take the gross value for IHT and deduct the value of property which does not pass under the will to arrive at the gross value for probate.

I think that has confused me even more now. To clarify, are you saying that the life interest afforded to my Dad under my Mum's will does not get included in the value for probate?