Probate value of property and cgt

[20kings]

Hello
My mother passed away in January, leaving a property to sell as the main part of her estate. I am one of her executors. There are 5 beneficiaries inheriting the proceeds of the house sale and 3 of these are also beneficiaries of the residuary estate, plus 2 others who do not inherit from the house. Shortly after my mother’s death, 3 estate agents valued her house @ £375-£400k. We applied for probate on line and unfortunately included the lower figure of £375k as the property valuation. Probate was granted in April with gross assets of £390k. (There is no inheritance tax to pay as the property is being inherited by children and grandchildren; the IR on line inheritance tax checker confirmed this).
As soon as we started marketing the property, we realised that it would sell closer to the £400k figure (we quickly received one offer for £400k which then fell through and are now progressing with a second offer of £395k.). Our concern is that the estate is now exposed to a CGT liability of £20k ie the difference between the probate and disposal values. Does anyone know if a revised probate value for the property (ie £400k) can still be agreed with the IR? Is there a form to advise them of a revised figure? Looking back at the on line probate application process, I don’t see any mention how the information we previously submitted can now be changed.
If we are exposed to CGT for the £20k amount, should we consider any other options other than paying the estate’s CGT rate @ 28%? 3 of the beneficiaries of the house (with a total 25% interest in the house) are resident in Australia; 1 Uk resident beneficiary (15% interest) is a basic rate tax payer and 1 uk resident beneficiary (60% interest) is a higher rate tax payer.

Any advice appreciated

20kings

[monabri]

Looks like you might be able to modify the probate valuation according to the .GOV website.

https://community.hmrc.gov.uk/customerf ... x%20return.


Worse case?


The UK residents are each allowed £3k cgt allowance as a deduction plus their share in costs of selling. They are then taxed at 18/28%. So, the basic rate taxpayer (UK) might face a tax bill of less than £180 ( less after factoring estate agent and solicitors fees).

I don't know about the tax for the Australians ...I guess ( guess) it might be of a similar cost.

[Bubblesofearth]

Hello
My mother passed away in January, leaving a property to sell as the main part of her estate. I am one of her executors. There are 5 beneficiaries inheriting the proceeds of the house sale and 3 of these are also beneficiaries of the residuary estate, plus 2 others who do not inherit from the house. Shortly after my mother’s death, 3 estate agents valued her house @ £375-£400k. We applied for probate on line and unfortunately included the lower figure of £375k as the property valuation. Probate was granted in April with gross assets of £390k. (There is no inheritance tax to pay as the property is being inherited by children and grandchildren; the IR on line inheritance tax checker confirmed this).
As soon as we started marketing the property, we realised that it would sell closer to the £400k figure (we quickly received one offer for £400k which then fell through and are now progressing with a second offer of £395k.). Our concern is that the estate is now exposed to a CGT liability of £20k ie the difference between the probate and disposal values. Does anyone know if a revised probate value for the property (ie £400k) can still be agreed with the IR? Is there a form to advise them of a revised figure? Looking back at the on line probate application process, I don’t see any mention how the information we previously submitted can now be changed.
If we are exposed to CGT for the £20k amount, should we consider any other options other than paying the estate’s CGT rate @ 28%? 3 of the beneficiaries of the house (with a total 25% interest in the house) are resident in Australia; 1 Uk resident beneficiary (15% interest) is a basic rate tax payer and 1 uk resident beneficiary (60% interest) is a higher rate tax payer.

Any advice appreciated

20kings

I don't know of you can avoid the CGT bill. Phoning the IR is probably worthwhile?

CGT is payable by each beneficiary on the level of interest in the house. So, for example, the person with a 15% interest in the house will only have a CGT bill of £3000. This is the same as the 24/25 CGT allowance so, if they have not used this elsewhere, they can use it here and pay no CGT. Same is probably true for the 3 other minor beneficiaries assuming being resident in Australia doesn't affect things?

The UK beneficiary with a 60% interest will have to pay 24% CGT on £9000 (60% of 20,000 minus £3000 CGT allowance) which is £2160. Again assuming the CGT allowance has not been used elsewhere.

My understanding anyway!

BoE

[scrumpyjack]

I don't know of you can avoid the CGT bill. Phoning the IR is probably worthwhile?

CGT is payable by each beneficiary on the level of interest in the house. So, for example, the person with a 15% interest in the house will only have a CGT bill of £3000. This is the same as the 24/25 CGT allowance so, if they have not used this elsewhere, they can use it here and pay no CGT. Same is probably true for the 3 other minor beneficiaries assuming being resident in Australia doesn't affect things?

The UK beneficiary with a 60% interest will have to pay 24% CGT on £9000 (60% of 20,000 minus £3000 CGT allowance) which is £2160. Again assuming the CGT allowance has not been used elsewhere.

My understanding anyway!

BoE

That may not be correct. That might be the case if the executor transfers the house to the beneficiaries before the sale, in which case the sale is personal to each of them, but otherwise the sale by the executor is a disposal by the estate, which has its own CGT allowance for the first 2 years of the estate administration period. It really depends if it is the estate that is selling the house or the individuals having had their beneficial interest in it transferred to them (or the executor acting as their bare trustee, rather than executor).

[20kings]

Hello all
Thanks for all your replies
I think scrumpyjack is right as the estate is selling the house. I think the first action is to go back to the IR and check if there is a CGT liability - all the estate agents valuations said £350 -£400k . Just thought there must be a Form or process to do that.
I

[AJC5001]

Hello all
Thanks for all your replies
I think scrumpyjack is right as the estate is selling the house. I think the first action is to go back to the IR and check if there is a CGT liability - all the estate agents valuations said £350 -£400k . Just thought there must be a Form or process to do that.
I

You originally said "Probate was granted in April with gross assets of £390k. (There is no inheritance tax to pay as the property is being inherited by children and grandchildren; the IR on line inheritance tax checker confirmed this)."
Assuming this is based on £175k allowance for the house (as it's going to direct descendants) with the rest of it being taken care of by the £325k IHT allowance, you will still be within the total £500k allowance if the estate increases from £390k to £415k because the house sells for £400k instead of the probate estimate of £375k.
If this is the case and therefore still no IHT is due, I don't see there is any need to inform anyone.

Adrian

[20kings]

Hello Adrian
Thanks for your reply. I realise there will still be no iht payable with the higher sale price, my concern is about CGT liability. The sale price will be higher than the gross probate figure so it will be visible that the probate valuation was exceeded. I do not want the IR coming after me for the taxes after I have distributed to beneficiaries in Australia. (Also I have just had to declare the probate value of the property on a form for the DWP as part of a review of my mother’s income related benefits so the probate figure is clearly documented elsewhere).

20kings

[monabri]

You have 2 years to amend the probate submission.

[SebsCat]

Hello all
Thanks for all your replies
I think scrumpyjack is right as the estate is selling the house. I think the first action is to go back to the IR and check if there is a CGT liability - all the estate agents valuations said £350 -£400k . Just thought there must be a Form or process to do that.
I

You originally said "Probate was granted in April with gross assets of £390k. (There is no inheritance tax to pay as the property is being inherited by children and grandchildren; the IR on line inheritance tax checker confirmed this)."
Assuming this is based on £175k allowance for the house (as it's going to direct descendants) with the rest of it being taken care of by the £325k IHT allowance, you will still be within the total £500k allowance if the estate increases from £390k to £415k because the house sells for £400k instead of the probate estimate of £375k.
If this is the case and therefore still no IHT is due, I don't see there is any need to inform anyone.

Adrian

That's not how it works. The estate is valued at the time of probate. If an item is subsequently sold by the estate for more than its probate value then that is a capital gain. The estate's personal representatives are liable for ensuring that any required CGT is paid (ie if they don't pay it out of the estate then HMRC can come after them as individuals).

In this case, if legal title to the property hasn't already been assigned to the beneficiaries then the default position is that the estate will have made a gain of £20k minus any allowable expenses for selling it. The estate will get the standard CGT allowance (£3k for this tax year) and have to pay CGT on the rest. It might be possible to reduce the overall CGT by arranging for a Deed of Appropriation. As long as this is signed by all beneficiaries before the property is sold then they will each become liable for their share of the capital gains and can each take advantage of the £3k allowance. See eg https://lawhive.co.uk/knowledge-hub/wil ... opriation/

[genou]

Hello Adrian
Thanks for your reply. I realise there will still be no iht payable with the higher sale price, my concern is about CGT liability.
20kings

I think what you are after is form C4 https://assets.publishing.service.gov.u ... CS_RIS.pdf .

There's an overview here: https://www.gov.uk/hmrc-internal-manual ... /ihtm10806

The question is whether the probate value was an underestimate ( in which case no CGT ) or not. The form is not going to help you with that - you could get a couple of estate agents to suggest whether there has been a particular move in the local market.

[20kings]

Thank you Genoa. All 3 estate agent’s valuations at the time of her death say £375 -£400k as the market value. We made the mistake of stating the lower figure for probate (not thinking straight then). Would these valuations not be enough to get the valuation at time of death changed to £400k?

[monabri]

https://forums.moneysavingexpert.com/di ... en-granted

The text reads

"Hello all,
I was just wondering, what is the process for amending the estimated value of a house on a IHT400 form where probate has already been granted? I used the average of a few valuations between a number of local estate agents, but I think the average maybe a little low (the house is not yet on the market, and isn't ready to be). Is it possible to amend this value? The adjustment upwards I am proposing to the value of the house will not result in any tax liability.
Many thanks"

The answer suggest using form c4

Form C4

https://assets.publishing.service.gov.u ... 0/c4_2.pdf

[scrumpyjack]

That's not how it works. The estate is valued at the time of probate. If an item is subsequently sold by the estate for more than its probate value then that is a capital gain. The estate's personal representatives are liable for ensuring that any required CGT is paid (ie if they don't pay it out of the estate then HMRC can come after them as individuals).

That is not necessarily the case. For example for shares the executor has the option to substitute for the probate value the actual sale proceeds of all shares sold in the 12 months after death. This can be a useful option in managing the estate- sell the losers but hang on to the winners at the 12 month point.

[SebsCat]

That's not how it works. The estate is valued at the time of probate. If an item is subsequently sold by the estate for more than its probate value then that is a capital gain. The estate's personal representatives are liable for ensuring that any required CGT is paid (ie if they don't pay it out of the estate then HMRC can come after them as individuals).

That is not necessarily the case. For example for shares the executor has the option to substitute for the probate value the actual sale proceeds of all shares sold in the 12 months after death. This can be a useful option in managing the estate- sell the losers but hang on to the winners at the 12 month point.

True, but that provision doesn't actually alter the probate value, just allows the executor to claim relief against IHT already paid (although the net effect is the same as if the probate value had been reduced). And, obviously, it can't be used to reduce CGT payable on an asset that has appreciated!

[20kings]

Update for anyone in the same position…..
The C4 form cannot be used to correct probate valuations for excepted estates (ie below the inheritance tax threshold) when the probate application has been submitted on line - only when you have previously submitted an IHT400 form. We submitted our application on line. I have spent hours on the phone to helplines. The HMRC CGT helpline said the issue is nothing to do with them ( they are just for self assessment) and the HMRC deceased estates helpline said their remit does not include excepted estates. I tried the Probate Registry helpline and they said it is a matter for HMRC. As a last resort, I consulted Which Legal and they confirmed I cannot use a C4 form as “the HMRC won’t know what it relates to”. Which Legal are not aware of any process to correct a probate valuation for an excepted estate, when submitted on line. They advised me to send now a recorded delivery letter to the Probate Registry, requesting a correction to the valuation and explaining the rationale why - but not to expect a reply. Then after the house is sold, we can inform HMRC of the sale within the required 60 day period, using “the informal reporting procedure “ ie a letter, and explain to the HMRC why we are using a different probate value than the one we originally submitted. Hope this does not delay distribution of the estate!

20kings