Inheritance Tax - how are adjustments made (compared to the submitted form) once all is settled?

What_time_is_it

We are, hopefully, nearing the point of selling an inherited house and being able to finalise all the paperwork on a UK inheritance. There is a property in Germany which still needs to be sorted and sold but that is another part of the story. We have been granted UK probate and had our inheritance tax bill agreed about 3 months ago. We intend to pay off the amount in full ASAP to avoid unnecessary interest payments. 

My question is, how are are the differences between what we put of the form and the final agreed sale/value of things calculated and accounted for? And what do we have to do about it?

The possible adjustments are:
1. Sale price of the UK property - likely to be higher than originally stated in our IHT forms.
2. Sale price/value of possessions - likely to be (a little) lower than originally stated.
3. Sale price/value of property in Germany - unknown at this point in time, but estimated in our submitted UK IHT forms.

I'm unsure how we need to proceed with this once the UK side of things is all tied up and the property here is sold. And also, in time, how we tie things up with the Germany property.

uknick

First, how did you get probate without paying the IHT due?  Have you agreed a payment plan?

Next, if the actual UK values change, could be higher or lower, you should go back to HMRC and ask to adjust the values used for the IHT calculation.  It used to be they sent out a letter asking you to let them know of any changes to the values, but I'm not sure if they do that these days.

With regard to the change in the property prices, if the final selling price is much higher than the IHT value the estate could end up paying capital gains tax on the difference after deducting any allowable annual allowances.

What_time_is_it

Thanks @uknick - yes, we set up a payment plan and have paid off the first instalment. We intend to pay off the remaining balance once the house sale is complete.

It sounds like we may have to go down both routes that you outline - going back to HMRC to adjust the value of the contents of the home (we overestimated these), and then looking to sort our the property price difference through Capital Gains Tax.

I have no idea how Capital Gains Tax works or how we would deduct allowances, etc. At the moment I'd be going in blind so I might have to spend some time looking into this.

uknick

Before you go back to HMRC, you need to do some "what if" scenarios to what tax is best to pay, IHT or CGT.

Have a look at this link;

How does the personal representative deal with the income and capital gains arising after the deceased’s death? | Low Incomes Tax Reform Group (litrg.org.uk)

to give you an idea of what can happen. 

What_time_is_it

Thanks @uknick

Once the property is sold can we split the money between the beneficiaries straight away?
And can we move our share of that into our savings accounts? With interest rates of 5%+ on easy access it would be worth quite a bit to do this ASAP, but is this possible/allowable?

Don't want to get tripped up!

uknick

I wouldn't transfer any money to beneficiaries until HMRC are satisfied you've paid all taxes due.

What_time_is_it

Thanks. 
But can we not put the house sale money into a savings account so that it at least earns some interest? e.g. £1m house sale = £4k a month interest.

Green_hopeful

We sold a house for more than the probate valuation and the Valuation Office contacted us to ask why. We explained that it was in a poorer condition at the time of death and that we had ’renovated’ it in the meantime. We had in fact painted all the rooms, windows and outside, cleared it and dressed it for sale. Not much in terms of changes. The market had also gone up a bit. They were satisfied and there was no adjustment to make. 

What_time_is_it

Thanks @green_hopeful. That's really interesting and very helpful.
Did you move the money from the house sale immediately? Or leave it in a current account until you were all done with HMRC?

Green_hopeful

Oh there was only one beneficiary and I think she got the money direct. 

uknick

What_time_is_it said:

Thanks. 
But can we not put the house sale money into a savings account so that it at least earns some interest? e.g. £1m house sale = £4k a month interest.

That's not what you asked.  You asked if you could distribute the estate and put your share into a savings account.  The funds should initially go into an executor's account.  If you can get an interest bearing executor account, that's all well and good.