Today we share thoughts of what happens, if we decide to adjust the value of a property after settling capital gains and inheritance tax. This amended value may increase, or decrease the initial assessment, requiring us to contact the HMRC tax office and explain the difference. Changing property probate value after a tax decision is an intriguing topic, one that seldom pops up in search results.
Valuers estimate the worth of property in deceased estates, as on the day of the late owner’s death. This is a reasonable convention, because we need to know what the deceased was worth at that moment in time. However, this reality changes if the asset subsequently sells for a different value. There are two possible scenarios:
The Sale Price Exceeds Property Probate Value
If a property in a deceased estate sells for more than its original assessed probate value, then there are two implications. That’s because this situation may cause adjustments up or down in inheritance and capital gains tax. We examine the principles prevailing in England, although there is no substitute for taking considered professional advice.
Inheritance Tax Considerations and Obligations
If a changing property probate value exceeds a the original submission, then the executor should lodge a fresh report with HMRC. The tax office then has the right to re-asses inheritance tax liability at the standard rate of 40%. However, this only applies if the new estate value is greater than the nil-rate band of £325,000.
The Implications of Capital Gains Tax
The value of an estate in England freezes at the moment of death. There is normally no capital gains tax due, if the asset transfers directly to a beneficiary. However, capital gains tax may accrue if the value increases after HMRC has finalised their capital gains tax calculation.
An HMRC tax official will calculate capital gains tax at a rate of 28% (for individuals) if the property is sold outright during administration of the estate. They will calculate this levy on the basis of the difference between the probate value and the selling price. However, they should offset selling costs and any improvements.
The Sale Price is Below Property Probate Value
If the selling price is below the probate assessment, then the executor may notify HMRC of the changing property probate value, and apply for a partial refund, if the difference is significant. However, the onus will be on them to convince the tax authority that the property sold at generally prevailing open market value.
How Long Are These Changes Relevant?
The sale price may be substituted as the changing property probate value within four years of the deceased’s passing. The Croner-i website goes on to explain how an interested party has seven years from the point of death to claim, and this could in theory at least open the door to a revised capital gains tax assessment.
Avoiding Reassessments and Discrepancies
Clearly, it would be best to avoid these situations, by being proactive wherever we can. The best way could be to obtain a professional property valuation, when preparing for probate. This should help save executor time and the estate should pay for the cost.
The UK HMRC tax authority has the right to challenge any asset value it receives. And if it unearths a major discrepancy, then it may dig deeper and this could delay matters further. We move on to discussing the importance of accurate property valuations in more detail.
How to Report a Changing Property Probate Value
The ball is very much in the executor’s court when a property value changes. Although we should mention that an executor is personally liable for their actions. They could decide to take professional advice before proceeding, but that again is entirely up to the executor.
The process in simple on paper. The executor lodges a formal request with the UK HMRC tax office. They will need hard evidence to substantiate their claims. This could, for example, include a fresh valuation, or a report summarising recent comparable sales.
Where to Turn To If You Need Advice
Avery Associates works on a daily basis with property valuers, on the panel of the Royal Institute of Chartered Surveyors (RICS) based in London. These men and women are highly trained, and accumulate a vast body of knowledge during their careers.
Professional RICS valuations are respected throughout the United Kingdom, as the standard to which other property valuers aspire. The UK tax authority acknowledges their authenticity too, because their reports are so well researched, motivated and documented.
Speak to us soon, if you need a RICS property valuation that others will respect. We can liaise with a RICS surveyor on your behalf, so you have one less task on your desk. You will find us friendly and professional, and our prices honest, open and fair. We look forward to meeting you soon.
More Information
