Property Valuation for IHT & CGT

sprucepilot

I am dealing with probate for my father's estate who died last year. He had a 1/4 share in a let commercial property which has been valued at £800k in its entirety. The valuer has deducted 15% to arrive at a 1/4 share value. As there may be no IHT to pay even with a 1/4 share value without the 15% reduction in value are we allowed to use any figure we wish between the minimum of the 1/4 value including the 15% reduction and a straight 1/4 value if it is advantageous for CGT purposes. His wife had another 1/4 share and she died a couple of months later. Can we do the same for her IHT & CGT and do the figures used have to be the same as the overall value at both dates is the same?

Keep_pedalling

It would be a bit odd if you valued them differently with such a short period between the two deaths, so that might raise questions from HMRC. Do you have plans to sell? Who owns the other half?

If the beneficiaries are the other owners and plan to sell then using the non discounted valuation would be useful to minimise CGT, unless that puts your mother’s estate well into IHT territory. 

Bookworm105

as you state that no IHT will be due then the value declared for probate purposes has not yet been "ascertained" - ie formally accepted by HMRC as that occurs when the IHT calculation is accepted and paid.

therefore, when the CGT is declared, it is at that point that the valuation will be reviewed by the Valuation Office Agency (an arm of HMRC) who will either accept your valuation or seek to impose their own overriding one., which you could then formally challenge.

You won't know the outcome until you put a value in. If the VOA do challenge then use of an amount in excess of an amount given by your own professional valuer may need additional justification since it appears the only reason you are using a larger figure is to (deliberately) manipulate the CGT rather than to avoid IHT as it will not affect the IHT.

impossible to predict if your inflated figure will be noticed, challenged or accepted. Just the same as it is impossible to say if an unaltered -15% value will be accepted without query., although clearly a 1/4 share is never going to be mathematically 1/4 of the whole since people do not sell 1/4s of a property in an easy market.

it may therefore come down to will your professional valuer be willing to defend either figure in the face of HMRC query?

I agree with the above poster that the same value must be used for both 1/4 shares 

TheGreenFrog

I recall that 10% is generally accepted for investment properties with 15% being for properties where the property concerned is or is intended to be the residence of one of the joint owners.   Can’t remember the source but I think is based on precedent. 

Bookworm105

TheGreenFrog said:

I recall that 10% is generally accepted for investment properties with 15% being for properties where the property concerned is or is intended to be the residence of one of the joint owners.   Can’t remember the source but I think is based on precedent. 

Wight and Moss v IRC (1984) 24 RVR 163; (1982) 264 EG 935 (Lands Tribunal)

section 18.4 - Half Share, joint occupiers
Inheritance Tax Manual - Section 18: undivided shares - Guidance - GOV.UK

section 9 - half share
Inheritance Tax Manual - Practice Note 2: undivided shares - Guidance - GOV.UK

sprucepilot

The entirety of the property will be sold, with the agreement of the other share owner, and then the total sale proceeds will be split arithmetically, without any discount for a share, between the party who owns the other half share and the beneficiaries of the husband and wife who are involved in IHT on their recent deaths who have been left the other half share in the wills. If an arithmetic half share is not used for IHT, which will if it was would use up both of the IHT NRB, then it seems unfair as CGT would then be payable on the difference between the discounted share value and the arithmetical share value. Thoughts please.

Bookworm105

sprucepilot said:

The entirety of the property will be sold, with the agreement of the other share owner, and then the total sale proceeds will be split arithmetically, without any discount for a share, between the party who owns the other half share and the beneficiaries of the husband and wife who are involved in IHT on their recent deaths who have been left the other half share in the wills. If an arithmetic half share is not used for IHT, which will if it was would use up both of the IHT NRB, then it seems unfair as CGT would then be payable on the difference between the discounted share value and the arithmetical share value. Thoughts please.

repeating the question does not alter the answers already given

MarcusRegius

Hi am new to the forum and sadly joined as I am handling my late mother's estate. I thought this would be the best thread to ask my question - apologies if not. 

To value her property for IHT and CGT purposes I will get estate agents (it is likely no IHT is payable) but how many, given (broadly) a lower valuation is better for the former but a higher is better for the latter? The IHT400 guide simply says "If you get several valuations which give a range of values for the property, it’s probably best to adopt a value that’s somewhere in between the highest and lowest values that you’ve got" which is kind of simple but doesn't answer my question and doesn't say that more than one valuation is even necessary, at least for IHT. Thanks. 

Bookworm105

MarcusRegius said:

Hi am new to the forum and sadly joined as I am handling my late mother's estate. I thought this would be the best thread to ask my question - apologies if not. 

To value her property for IHT and CGT purposes I will get estate agents (it is likely no IHT is payable) but how many, given (broadly) a lower valuation is better for the former but a higher is better for the latter? The IHT400 guide simply says "If you get several valuations which give a range of values for the property, it’s probably best to adopt a value that’s somewhere in between the highest and lowest values that you’ve got" which is kind of simple but doesn't answer my question and doesn't say that more than one valuation is even necessary, at least for IHT. Thanks. 

would have been better to start a new thread to avoid people answering the OP, not your question, but hey ho

the number of valuations you get is largely irrelevant until the point at which you have to use that data in a tax calculation. That of course may be a long time later so you want "compelling" evidence that your inheritance valuation was "robust". As you have identified HMRC do not dictate what that means, it could be the average of "several" or it could be one done by a professional valuer on a specific property basis who has professional credibility in the eyes of HMRC (and is willing to defend in a tax tribunal if required)

the average of 3 is cheaper to do than the latter and of course the latter valuer may not be around when you actually get to declare your CGT anyway.