George Hay Chartered Accountants were one of the first accountancy firms in the country to obtain a licence to carry out non-contentious probate work. In our monthly column, we give you an insight into the process and provide an update on what is happening in the world of probate and estates.
With forecasts of a decline in property prices, it is perhaps a good time to revisit how property is valued for Inheritance Tax (IHT) purposes.
Death within 7 Years of Gift
IHT is payable on the value of an Estate on death, plus the value of lifetime gifts within the seven years prior. One planning point with lifetime gifts is that, even if somebody was not expected to survive seven years, a lifetime gift often helped as on death it was the value at the date of gift that was included.
Therefore, any growth in value of the property between the date of the gift and the date of death was outside of the Estate.
If prices are likely to fall, it is still the value on the gifting date that counts, so IHT could be payable on a value higher than needed to be.
Value at Death
It is the Executors’ duty to report to HMRC the value, at death, of properties. HMRC’s recommendation is that three professional valuations are obtained. In most cases, we suggest two in the first instance and if they are close enough, we would take an average.
It is dangerous not to obtain a formal valuation as, if challenged by HMRC, it is difficult to justify the amount you returned, and penalties can be charged.
In respect of planning, an important point to note is that if a property is jointly owned (not as spouses), then a 10 per cent discount on full valuation is generally allowable.
Subsequent Sale above Probate Value
Sometimes it takes a while to obtain probate, and to subsequently sell a property etc., and in this time the value may have risen. Capital Gains Tax (CGT) is payable on any increase. This is at a rate of 28 per cent.
The Executor can use the deceased’s CGT nil rate band, currently £12,300, in the year of death and up to two tax years afterwards.
It is often a useful planning technique, prior to sale, to appoint the property to beneficiaries. If, say, there were four children to inherit, then you could have 4 x £12,300 free of tax, and if their income is not high, potentially some of the gain may only be taxed at 18 per cent.
Subsequent Sale lower than Probate Value
This could well be the more common scenario if property prices do fall. However, if you do find yourself in this position, you can elect to use the value of the property at death. Hence, there is no need to panic about prices falling; there is no significant risk associated with gifting in a declining market.
Given the points we have covered above, it is extremely important that all planning opportunities are considered.
As Chartered Accountants advising on probate, we have the expertise to support you with thorough planning across the full range of taxes.
To talk to one of our experts about undertaking Inheritance Tax planning, contact us on 01480 426500 or fill in our online enquiry form.
Authored by Director of GH Probate Ltd., Barry Jefferd.
Our Probate service is provided through GH Probate Limited. GH Probate is the trading style of GH Probate Limited. Registered in England and Wales number 9630102. Registered Office: St George’s House, George Street, Huntingdon, Cambridgeshire PE29 3GH.
Authorised to carry out the reserved legal activity of non-contentious probate in England and Wales by the Institute of Chartered Accountants in England & Wales.