Capital gains tax inherited property.

Freeasabird22

Hi,
I inherited a property in 2023, I renovated it, put it on the market and the sale completed last Friday 21/11/2025.
My accountant is currently working out my capital gains liability.

I have a valuation from an estate agent from 2023, which I submitted to the accountant, she says HMRC will need a retrospective valuation from a RICS surveyor. I have been researching this and it seems that a RICS valuation may be significantly lower than an estate agent valuation. In which case I would have a higher capital gains tax bill.

My accountant said she could submit the estate agent valuation but there is a chance that HMRC may investigate the claim.
She said its up to me, but suggests a RICS valuation, or she said alternatively HMRC could provide a valuation.
Which is the best option and if I did submit the estate agent valuation how likely is it to be investigated.

Thank you in advance.

p00hsticks

Was the estate subject to IHT ? What figure was used for probate ? 
If the 2023 estate agent valuation was the one used for the probate application, then I'd say the same one ought to be used as the starting point for the CGT calculation, but I'm no expert. 

subjecttocontract

I'd be inclined to submit the return with the estate agent valuation and see how it goes. What have you got to loose ? They may accept it and if not then get a RICS valuation if that's what they want. They can only say yes or no.

Keep_pedalling

The valuation should be based on whatever value was established for probate. If an IHT return was made then that valuation would already be lodged with HMRC. 

NorthYorkie

 Bear in mind, however, that the figure used for probate (or even IHT if applicable) is not necessarily binding for Capital Gains Tax purposes. Strictly, the value must have been 'ascertained' for IHT in order to be binding for CGT - see CG16251 - Assets: checking valuations: value ascertained for probate - HMRC internal manual - GOV.UK If there was no IHT liability on the estate, then the value will not have been 'ascertained' because it would be an excepted estate, so the Revenue may require the market value to be determined at the date of death.

Freeasabird22

Thank you for your replies.The property went through probate in 2017, when my Father passed away. There was no inheritance tax to pay. The solicitor who dealt with probate said just to get an estate agent valuation, I had never heard of a red book valuation and he didn't tell me. However the value would never have been above the inheritance tax threshold, as it was impossible for the property to be worth that much.

The will stated that my step mother should live in the property until her death, and that I could not take possession of the property until after her death. She passed away in 2023.
The solicitor who handled the sale checked the will and I have a solicitors letter stating that the capital gains tax calculation will be based on the value of the sale in 2023 as that was the point when legal and beneficial interests were joined.

If I submit the capital gain to HMRC  with the state agent valuation and they pick up on it, what would happen.  I'm self employed too would they also investigate the accounts for my business? I believe my accounts are in order, but I wouldn't want the stress.

Thanks again.

Keep_pedalling

Freeasabird22 said:

Thank you for your replies.The property went through probate in 2017, when my Father passed away. There was no inheritance tax to pay. The solicitor who dealt with probate said just to get an estate agent valuation, I had never heard of a red book valuation and he didn't tell me. However the value would never have been above the inheritance tax threshold, as it was impossible for the property to be worth that much.

The will stated that my step mother should live in the property until her death, and that I could not take possession of the property until after her death. She passed away in 2023.
The solicitor who handled the sale checked the will and I have a solicitors letter stating that the capital gains tax calculation will be based on the value of the sale in 2023 as that was the point when legal and beneficial interests were joined.

If I submit the capital gain to HMRC  with the state agent valuation and they pick up on it, what would happen.  I'm self employed too would they also investigate the accounts for my business? I believe my accounts are in order, but I wouldn't want the stress.

Thanks again.

Yes as beneficial owner the house formed part of her estate for IHT purposes so as remainderman you did not actually inherit until her death and the CGT is based on the valuation on her estate. Do you know how her executor valued the home? Did they complete an IHT return? 

Freeasabird22

Hi, Thanks,
It was my Father's estate that went through probate in 2017. My stepmother didn't own the house, she just had the right to live there. Her name was never on the deeds.

My step brother dealt with all arrangements on his Mother's death, as I'm not a blood relative I was not involved.

I don't think there would have been probate involved after my step mothers death?

After my Father's death in 2017, his estate went through probate with a solicitor, who only asked for an estate agent valuation. He would have completed the IHT return
 

Keep_pedalling

Freeasabird22 said:

Hi, Thanks,
It was my Father's estate that went through probate in 2017. My stepmother didn't own the house, she just had the right to live there. Her name was never on the deeds.

My step brother dealt with all arrangements on his Mother's death, as I'm not a blood relative I was not involved.

I don't think there would have been probate involved after my step mothers death?

After my Father's death in 2017, his estate went through probate with a solicitor, who only asked for an estate agent valuation. He would have completed the IHT return
 

Your father’s will created an immediate post death interest trust. The trust became the legal owner of his home but your step mother became the beneficial owner. For IHT purposes this ment none of your father’s NRB was used up but for IHT purposes the house became part of her estate. Depending on the value of the house and her own assets a IHT return may have been required. Even if no IHT was due a return would still be needed if either residential NRB needed to be claimed.

What was the approx value of the house in 2023?

poseidon1

Freeasabird22 said:

Hi, Thanks,
It was my Father's estate that went through probate in 2017. My stepmother didn't own the house, she just had the right to live there. Her name was never on the deeds.

My step brother dealt with all arrangements on his Mother's death, as I'm not a blood relative I was not involved.

I don't think there would have been probate involved after my step mothers death?

After my Father's death in 2017, his estate went through probate with a solicitor, who only asked for an estate agent valuation. He would have completed the IHT return
 

Ultimately, the technical position is as set out in Northyorkie's post.

I am guessing you were not only remainderman of the trust but also a trustee? However the responsibility for obtaining the property valuation rested with your stepbrother who was required to do so as executor of his mother's estate. Since IHT was not in point, the property valuation was not 'ascertained' as advised by NorthYorkie.

You could indeed allow your accountant to submit the return on the basis suggested by Subcontract, pay the tax and adopt a wait and see approach.

However, a potential HMRC challenge to your computation  ( if it occurs) could take a while to materialise. Tax reporting for residential property sales is in two parts. Your basic computation for submission within 60 days of sale within which you make your 'self assessed' tax payment. 

Where HMRC is likely to scrutinise the basis of your CGT  computation is on submission of your subsequent  full blown self assessment tax return for 2025/26. 

Depending on how quickly you normally submit  your 2025/26  tax return, this will dictate if/when there is an enquiry lodged by HMRC thereon. In the interim, and subject to whether  an enquiry  ultimately increases the tax payable, interest will be running ( currently at 8%) on the tax deemed underpaid.

However, the main risk in this scenario which I think may concern your accountant is whether HMRC could consider you failed to take reasonable care by not obtaining your own red book valuation at date of death to support your CGT submission. See below a useful  article from the LITRG on this point - 

https://www.litrg.org.uk/tax-nic/tax-checks-and-disputes/tax-penalties-and-interest#:~:text=in more detail.-,Penalties for errors,a result of the error.

 The irony here, is if you were not professionally advised in this matter and therefore not already put on notice of a RICs valuation requirement, you could have pleaded ignorance as a mitigation defence against potential penalties for using a mere estate agent's valuation. Clearly that ship has sailed.

So in summary your risk if you don't do as suggested, are HMRC penalties ( for failing to take reasonable care) in addition to interest on the underpayment. Bear in mind however , the cost of obtaining the valuation is an additional tax deductible expense against the property gain as well as your accountancy fees for handling this matter. Worth noting HMRC have been stepping up their CGT investigations especially where it involves property disposals - see below

https://www.pie.tax/tax-pible/hmrc-cgt-investigations-2023-24