IHT or CGT or both??

ft37gr6

SUMMARY: I paid IHT due on an estate, which included a house valued at £500k.  Subsequently, the actual sale price of the house was £535k.  Do I need to pay tax on the difference and, if so, is it IHT or CGT?


DETAILS: I was granted letters of administration last year to deal with the estate of my late uncle.  In order to obtain, I submitted the relevant IHT forms to HMRC and paid the IHT due (as the total estate value was above the exemption threshold).  On the IHT forms, I included an estimate of the likely sale value for his house of £500,000, which was agreed with the local district valuer and stated on form IHT 302 (part 1) issued by HMRC.

Subsequently, the house achieved a sale price of £535,000.  Costs of sales (estate agent and solicitor fees) amounted to £12,000.  I contacted HMRC after the sale completed in July 2024 to: 1) advise of the difference in value between the amount stated for IHT purposes and the actual sale price; and 2) request conformation of whether or not further tax is due.  It has now been over three months and I am yet to receive a response to my letters (original letter informing HMRC plus a chaser), other than to say HMRC have received my letters and are considering with their technical team.

I would expect this situation to be relatively common, given it's unlikely at the time of completing IHT forms (often months before) you would be able to state, or forecast, the sale price exactly.  As such, I'm surprised this requires referral to HMRC's technical team.  My own view is that, given the values for IHT purposes have been agreed, the net gain on the sale of the house falls to be considered under CGT rules alone.  What I am unsure about is whether any reliefs (e.g. annual exemption, PPR) would be available.  My uncle lived in the house from 1974 until his death in 2023 and it was the only real property he owned so I would expect any gain to be sheltered.

penners324

Why not speak to accountant?

There will be extra tax due.

p00hsticks

AS I understand it CGT would be due by the estate on any increase on sale over the value declared for probate (less any selling costs). The estate has a single CGT allowance. 

Depending on the amount of time elapsed since the death / applicaiton for probate I think there may be the possible alternative of going back and amending the IHT forns and paying increased IHT instead but I'm not sure how oyu;d go about that or if it woud lbe financially beneficial .....

Jeremy535897

If HMRC agreed the value of the estate on which inheritance tax paid, that is the end of the matter for inheritance tax, unless there was a lack of disclosure of something.You can go back and revise an agreed value downwards in some circumstances, if there is a sale of land within four years of death, but that is not relevant here.
Therefore the executors will have a capital gain based on the difference between the sale price (less selling costs) and the value for inheritance tax. The fact that your uncle lived there as his main residence is irrelevant.
I don't know why you contacted HMRC? You just seem to have created work for no purpose. The executors will have to report and pay the capital gains tax due within 60 days of completion:

If you’re reporting on behalf of someone else or an estate

Use your own Capital Gains Tax on UK property account to report for someone else.

You’ll need proof you’re allowed to report on their behalf, such as a lasting power of attorney. If the person has died, you’ll need their date of death.

You cannot pay using your account if you’re reporting a gain on behalf of an estate as a personal representative (executor or administrator). HMRC will let you know how to pay after you report the gain.

Keep a digital or printed copy of the return for your records.

https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020

See also https://www.gov.uk/government/publications/death-personal-representatives-and-legatees-hs282-self-assessment-helpsheet/hs282-death-personal-representatives-and-legatees-2024

Keep_pedalling

How did you value the house? If this was with a RICS valuation it is unlikely that HMRC would challenge it and that yay have a CGT liability on the £35k gain (less £3k less selling costs). CGT needs to be paid within 60 days of the sale so it looks like you have missed that deadline.

Bookworm105

ft37gr6 said:

 My uncle lived in the house from 1974 until his death in 2023 and it was the only real property he owned so I would expect any gain to be sheltered.

for rather obvious reasons PRR ends upon death. 
the property then becomes part of the estate and as such is entitled to the tax relief available to estates, which, as a "non natural person" does not include the ability to live in the property to earn PRR as the estate's main residence.

as Jeremey says, given IHT has been physically paid, then that means HMRC has "ascertained" the value at date of death, so a higher value when sold falls on the CGT liability of  (as applicable) either the estate or the beneficiaries if the property has already been transferred (conveyed) into the latter's name as they would then be the seller

CG32224 - Death and Personal Representatives: Valuation of assets at date of death and associated liaison with Specialist PT-IHT: Ascertained values: Valuation of assets: ascertained values: meaning of `ascertained' - HMRC internal manual - GOV.UK

CG16251 - Assets: checking valuations: value ascertained for probate - HMRC internal manual - GOV.UK

Jeremy535897

Bookworm105 said:

ft37gr6 said:

 My uncle lived in the house from 1974 until his death in 2023 and it was the only real property he owned so I would expect any gain to be sheltered.

for rather obvious reasons PRR ends upon death. 
the property then becomes part of the estate and as such is entitled to the tax relief available to estates, which, as a "non natural person" does not include the ability to live in the property to earn PRR as the estate's main residence.

as Jeremey says, given IHT has been physically paid, then that means HMRC has "ascertained" the value at date of death, so a higher value when sold falls on the CGT liability of  (as applicable) either the estate or the beneficiaries if the property has already been transferred (conveyed) into the latter's name as they would then be the seller

CG32224 - Death and Personal Representatives: Valuation of assets at date of death and associated liaison with Specialist PT-IHT: Ascertained values: Valuation of assets: ascertained values: meaning of `ascertained' - HMRC internal manual - GOV.UK

CG16251 - Assets: checking valuations: value ascertained for probate - HMRC internal manual - GOV.UK

Indeed. The fact that HMRC involved the District Valuer means the matter is closed (subject to there having been full disclosure of everything). The link I provided to HS282 goes through the difference between a sale by the executors and the sale of appointed assets by a legatee, although OP's post suggests it was a sale by the executors.

ft37gr6

Thanks all for comments and advice.  To answer a couple of the points raised:

- full disclosure was made to HMRC regarding the property and the estate.  The value of the house stated for IHT purposes was based on a valuation by two estate agents.  The HMRC officer referred the case to the District Valuer, who agreed with the valuation by the EAs.  The house was marketed at £500k, but a number of offers were received which resulted in the price increasing to the eventual sale price of £535k.
- the property was sold by the estate to a third party.

Jeremy535897

Capital gains tax it is then.