Undervalued house for probate

downshifted

“We, as joint executors, have undervalued our late mother’s estate by £60k because the house sold for that much more than expected. The estate is being distributed only between the executors. There is no inheritance tax due because my father predeceased our mother and she has his allowance.

Do we have to pay capital gains first, then distribute? What rate do we use? What forms do we use? 

We’re novices at this so any help will be gratefully received, thank you”

Keep_pedalling

If the house has already been sold within the estate then unfortunately it is the estate that pays the CGT.

You say it has been sold have contracts been exchanged yet?

NordicNoir

It has been a while since I researched this in detail but I believe that if the estate did not pay IHT, the value of the house at the date of death has not been ascertained. For the purposes of CGT you can use the market value of the house at the date of death, rather than the probate value that you used. I assume that the value of the estate, using the correct market value, would still result in no IHT being due?

Start here:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg16251

downshifted

Thanks for your responses. Contracts are ready but not yet exchanged.

There will not be any IHT payable even when the higher price for the house is taken into account. 

There are 4 executors and beneficiaries, 3 are siblings and the other is the adult child of a deceased sibling.

Dandylion

NordicNoir said:

It has been a while since I researched this in detail but I believe that if the estate did not pay IHT, the value of the house at the date of death has not been ascertained. For the purposes of CGT you can use the market value of the house at the date of death, rather than the probate value that you used. I assume that the value of the estate, using the correct market value, would still result in no IHT being due?

Start here:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg16251

It would be really helpful if someone in the know could comment on this. I often read advice on this forum saying people must ensure houses aren’t undervalued at the probate stage, or CGT will come into play. This link suggests that is not the case, unless IHT is involved. 

poseidon1

downshifted said:

“We, as joint executors, have undervalued our late mother’s estate by £60k because the house sold for that much more than expected. The estate is being distributed only between the executors. There is no inheritance tax due because my father predeceased our mother and she has his allowance.

Do we have to pay capital gains first, then distribute? What rate do we use? What forms do we use? 

We’re novices at this so any help will be gratefully received, thank you”

You say undervalued but with no context.

When was date of death, and was the valuation professionally obtained from a qualified surveyor for probate, or merely an informal average of two or three local estate agents' opinions?

In other words what was the extent of your due diligence in attempting to obtain a reasonably accruate valuation for probate purposes?

If despite the HMRC guidance provided by the link supplied by @NordiNoir an estate CGT liabilty arises,  then the net gain after deducting estate exemption of £3000 will be at the rate of 24%, payable within 60 days of completion using the online reporting process set out in the link below:


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

Linton

You can get the probate value updated to reflect the actual selling price.  It was done by our solicitor when I was an executor.  I believe there are conditions on dates and there being a good reason for the change.

downshifted

You say undervalued but with no context.

When was date of death, and was the valuation professionally obtained from a qualified surveyor for probate, or merely an informal average of two or three local estate agents' opinions? 

In other words what was the extent of your due diligence in attempting to obtain a reasonably accruate valuation for probate purposes?

“Thank you for your response. Mum died in March last year. I feel, with our lack of knowledge and upset at the time, we did not do enough due diligence, although we thought the price was fair”

poseidon1

downshifted said:

You say undervalued but with no context.

When was date of death, and was the valuation professionally obtained from a qualified surveyor for probate, or merely an informal average of two or three local estate agents' opinions? 

In other words what was the extent of your due diligence in attempting to obtain a reasonably accruate valuation for probate purposes?

“Thank you for your response. Mum died in March last year. I feel, with our lack of knowledge and upset at the time, we did not do enough due diligence, although we thought the price was fair”

Well there has certainly been house price increases in England & Wales since March 2024  with some regions experiencing greater increases than others. 

You have still not explained how you went about ascertaining a March 2024 market value that was 'fair', but given over 18 months has passed since death,  a taxable gain is virtually a given.

In the absence of a reasonable basis to revisit your original valuation for probate purposes ( ie that it was used in calculating an IHT liability), I struggle to see how you can now justifiably replace that with another figure that reduces  the quantum of your taxable gain. Perhaps others can identify possibilities in this regard?

mybestattempt

poseidon1 said:

downshifted said:

You say undervalued but with no context.

When was date of death, and was the valuation professionally obtained from a qualified surveyor for probate, or merely an informal average of two or three local estate agents' opinions? 

In other words what was the extent of your due diligence in attempting to obtain a reasonably accruate valuation for probate purposes?

“Thank you for your response. Mum died in March last year. I feel, with our lack of knowledge and upset at the time, we did not do enough due diligence, although we thought the price was fair”

Well there has certainly been house price increases in England & Wales since March 2024  with some regions experiencing greater increases than others. 

You have still not explained how you went about ascertaining a March 2024 market value that was 'fair', but given over 18 months has passed since death,  a taxable gain is virtually a given.

In the absence of a reasonable basis to revisit your original valuation for probate purposes ( ie that it was used in calculating an IHT liability), I struggle to see how you can now justifiably replace that with another figure that reduces  the quantum of your taxable gain. Perhaps others can identify possibilities in this regard?

I agree with @poseidon1, you need be confident you can justify departing from the date of death/probate value used for IHT purposes.

The acquisition value of the property to be used in calculating the capital gain is the market value at the date of death. The same value must be used for both IHT and Capital Gains tax.

If a capital gain calculation uses a date of death/probate value then HMRC check to establish if it has been ascertained for IHT purposes.

If it has not been ascertained then the date of death value must be determined and will be referred to the VOA (Valuation Office Agency).

If you don't agree/accept the VOA date of death/probate valuation then you will need to provide detailed reasoned argument to challenge it, probably a RICS valuation which supports your own date of death/probate valuation.