Inheritance / Estate question ...
Discussion
My better half is organising her fathers estate. Been going on a year now but nearly sorted.
Questions...
Her fathers home (one part of the estate) is still with the executors - whilst she has organised taking over the mortgage.
Six months ago; the home was valued at £1,000,000 at probate - and the apportioned inheritance tax on that has been paid (amongst a myriad of other properties and assets).
Now - six month on - the property has been valued at £1,300,000 (by the new mortgage company - that my better half is using). So the mortgage co have valued it £300,000 more than the original probate valuation.
The solicitors are saying we MUST tell HMRC of this increase in value - and pay tax on the additional £300,000.
We’re a little confused - we paid the inheritance tax due on the estate. Why do we now have to pay more; on the additional amount that the mortgage company valuer has decided it’s worth.
HMRC were happy with what we submitted at probate and payment was made. Done and dusted we thought.
Questions are:
1: does HMRC have to be told about any increase in value from when the probate valuation was done (to the point at which it now transfers to my girlfriend).
2: why does this increase in value rest on what the mortgage valuer valued it at? Who’s to say the mortgage valuation is correct? In other words - if we DO have to tell HMRC of an increase in value; why use the mortgage valuation? Why can’t we get another valuation done indepndentaly of the mortgage co. And if it’s less than the mortgage valuation (which it will be); use that instead.
I ask all of this because another property has already been transferred out of her fathers estate... and we didn’t have to do any of this - so we’re confused. Don’t suggest speaking with the solicitors - because they make little sense and are adamant that this has to be done. They’ve agreed that there’s no legal obligation to tell HMRC of the mortgage valuation; so our question is; why do it then???
Questions...
Her fathers home (one part of the estate) is still with the executors - whilst she has organised taking over the mortgage.
Six months ago; the home was valued at £1,000,000 at probate - and the apportioned inheritance tax on that has been paid (amongst a myriad of other properties and assets).
Now - six month on - the property has been valued at £1,300,000 (by the new mortgage company - that my better half is using). So the mortgage co have valued it £300,000 more than the original probate valuation.
The solicitors are saying we MUST tell HMRC of this increase in value - and pay tax on the additional £300,000.
We’re a little confused - we paid the inheritance tax due on the estate. Why do we now have to pay more; on the additional amount that the mortgage company valuer has decided it’s worth.
HMRC were happy with what we submitted at probate and payment was made. Done and dusted we thought.
Questions are:
1: does HMRC have to be told about any increase in value from when the probate valuation was done (to the point at which it now transfers to my girlfriend).
2: why does this increase in value rest on what the mortgage valuer valued it at? Who’s to say the mortgage valuation is correct? In other words - if we DO have to tell HMRC of an increase in value; why use the mortgage valuation? Why can’t we get another valuation done indepndentaly of the mortgage co. And if it’s less than the mortgage valuation (which it will be); use that instead.
I ask all of this because another property has already been transferred out of her fathers estate... and we didn’t have to do any of this - so we’re confused. Don’t suggest speaking with the solicitors - because they make little sense and are adamant that this has to be done. They’ve agreed that there’s no legal obligation to tell HMRC of the mortgage valuation; so our question is; why do it then???
It's not unusual for such figures to need adjustment with HMRC once an estate sale takes place. In your situation of a new mortgage being taken it's generally the case that banks value properties lower than buyers, so there doesn't seem much scope to wriggle out of the tax even though there hasn't been a sale.
If there's a significant risk the original valuer was 25% low across other assets the executors ought to have a re-think about those as well. It's one thing for executors to present figures to HMRC which are "in the ball park" but a 25% margin of error sounds like it might be "out in the car park".
Some info' on this link https://www.barkerevanslaw.co.uk/2013/07/probate-v...
At the end of the day it's all a question of what value could genuinely be ascertained by executors acting in an open and honest fashion with appropriate professional guidance.
If there's a significant risk the original valuer was 25% low across other assets the executors ought to have a re-think about those as well. It's one thing for executors to present figures to HMRC which are "in the ball park" but a 25% margin of error sounds like it might be "out in the car park".
Some info' on this link https://www.barkerevanslaw.co.uk/2013/07/probate-v...
At the end of the day it's all a question of what value could genuinely be ascertained by executors acting in an open and honest fashion with appropriate professional guidance.
rockin said:
It's not unusual for such figures to need adjustment with HMRC once an estate sale takes place. In your situation of a new mortgage being taken it's generally the case that banks value properties lower than buyers, so there doesn't seem much scope to wriggle out of the tax even though there hasn't been a sale.
If there's a significant risk the original valuer was 25% low across other assets the executors ought to have a re-think about those as well. It's one thing for executors to present figures to HMRC which are "in the ball park" but a 25% margin of error sounds like it might be "out in the car park".
Some info' on this link https://www.barkerevanslaw.co.uk/2013/07/probate-v...
At the end of the day it's all a question of what value could genuinely be ascertained by executors acting in an open and honest fashion with appropriate professional guidance.
Thank you for this reply. Genuinely appreciated.If there's a significant risk the original valuer was 25% low across other assets the executors ought to have a re-think about those as well. It's one thing for executors to present figures to HMRC which are "in the ball park" but a 25% margin of error sounds like it might be "out in the car park".
Some info' on this link https://www.barkerevanslaw.co.uk/2013/07/probate-v...
At the end of the day it's all a question of what value could genuinely be ascertained by executors acting in an open and honest fashion with appropriate professional guidance.
Our take on it was that; we’ve paid the inheritance tax; when the probate values were given. And now that a mortgage has been arranged by the eventual beneficiary (my partner) - we didn’t think we’d have to go back to HMRC and tell them that the mortgage co. has valued it at more... is that an actual legal obligation, of the solicitors / executors?
It seems an odd thing to do; we got proper valuations done, at probate; HMRC investigated and were happy; we paid the tax. Done and dusted; or so we thought...
IHT at the time of probate is only a best estimate. For any asset disposed of after obtaining probate it is the sale price that then has to be taken account of and already paid IHT adjusted if necessary.
Other items are subject to best estimate, often by professionals eg jewellers for family jewellery etc.
In summary, in order to get probate a provisional calculation of IHT must be calculated and paid paid, based on best valuations, from professionals if appropriate, and then after getting probate if anything disposed of its achieved value is compared to its provisional value and IHT adjusted accordingly. The provisional IHT may then go up or down to get to the final IHT liability.
At the very end of the administration, the executors or personal representatives are required to produce estate accounts setting out how they have valued and disposed of assets according to the will, the provisional IHT paid and any required adjustments to IHT that is paid or reclaimed, all costs, fees etc. Beneficiaries are entitled to have a copy of the accounts and can be expected to request this from the executors or personal administrators.
The above is my understanding after learning all about it while being an executor on maybe 6-7 occasions when a member of the family has died.
I'm happy to be corrected.
R.
Other items are subject to best estimate, often by professionals eg jewellers for family jewellery etc.
In summary, in order to get probate a provisional calculation of IHT must be calculated and paid paid, based on best valuations, from professionals if appropriate, and then after getting probate if anything disposed of its achieved value is compared to its provisional value and IHT adjusted accordingly. The provisional IHT may then go up or down to get to the final IHT liability.
At the very end of the administration, the executors or personal representatives are required to produce estate accounts setting out how they have valued and disposed of assets according to the will, the provisional IHT paid and any required adjustments to IHT that is paid or reclaimed, all costs, fees etc. Beneficiaries are entitled to have a copy of the accounts and can be expected to request this from the executors or personal administrators.
The above is my understanding after learning all about it while being an executor on maybe 6-7 occasions when a member of the family has died.
I'm happy to be corrected.
R.
The Leaper said:
IHT at the time of probate is only a best estimate. For any asset disposed of after obtaining probate it is the sale price that then has to be taken account of and already paid IHT adjusted if necessary.
Other items are subject to best estimate, often by professionals eg jewellers for family jewellery etc.
In summary, in order to get probate a provisional calculation of IHT must be calculated and paid paid, based on best valuations, from professionals if appropriate, and then after getting probate if anything disposed of its achieved value is compared to its provisional value and IHT adjusted accordingly. The provisional IHT may then go up or down to get to the final IHT liability.
At the very end of the administration, the executors or personal representatives are required to produce estate accounts setting out how they have valued and disposed of assets according to the will, the provisional IHT paid and any required adjustments to IHT that is paid or reclaimed, all costs, fees etc. Beneficiaries are entitled to have a copy of the accounts and can be expected to request this from the executors or personal administrators.
The above is my understanding after learning all about it while being an executor on maybe 6-7 occasions when a member of the family has died.
I'm happy to be corrected.
R.
Thank you for this. Very much appreciated and all taken on board. You’ve helped shed some light on the situ’ - I thought the solicitors were being awkward but I see it’s par for the course.Other items are subject to best estimate, often by professionals eg jewellers for family jewellery etc.
In summary, in order to get probate a provisional calculation of IHT must be calculated and paid paid, based on best valuations, from professionals if appropriate, and then after getting probate if anything disposed of its achieved value is compared to its provisional value and IHT adjusted accordingly. The provisional IHT may then go up or down to get to the final IHT liability.
At the very end of the administration, the executors or personal representatives are required to produce estate accounts setting out how they have valued and disposed of assets according to the will, the provisional IHT paid and any required adjustments to IHT that is paid or reclaimed, all costs, fees etc. Beneficiaries are entitled to have a copy of the accounts and can be expected to request this from the executors or personal administrators.
The above is my understanding after learning all about it while being an executor on maybe 6-7 occasions when a member of the family has died.
I'm happy to be corrected.
R.
LDN said:
Thank you for this. Very much appreciated and all taken on board. You’ve helped shed some light on the situ’ - I thought the solicitors were being awkward but I see it’s par for the course.
I have recently wrapped up my father's quite complex estate.I got proper valuations as close to his death as possible. I was told by the advisers (who were not cheap) that this was sufficient, and we have made no adjustment subsequent to these valuations.
desolate said:
LDN said:
Thank you for this. Very much appreciated and all taken on board. You’ve helped shed some light on the situ’ - I thought the solicitors were being awkward but I see it’s par for the course.
I have recently wrapped up my father's quite complex estate.I got proper valuations as close to his death as possible. I was told by the advisers (who were not cheap) that this was sufficient, and we have made no adjustment subsequent to these valuations.
I will dig deeper.
The Leaper said:
In summary, in order to get probate a provisional calculation of IHT must be calculated and paid paid, based on best valuations, from professionals if appropriate, and then after getting probate if anything disposed of its achieved value is compared to its provisional value and IHT adjusted accordingly. The provisional IHT may then go up or down to get to the final IHT liability.
Would this count as a disposal, though? I'd have thought it's just another (different) estimate, rather than an achieved value...Yes this is the issue; there doesn’t seem to be a solid route to go and the solicitors seem to not know what they’re doing - to be frank.
We get told different things by different members of their ‘team’ - but this is a lot of money and we don’t appreciate the mixed messages.
The value is probably somewhere in between the two figures, realistically... but that’s nearly a year on from probate.
We get told different things by different members of their ‘team’ - but this is a lot of money and we don’t appreciate the mixed messages.
The value is probably somewhere in between the two figures, realistically... but that’s nearly a year on from probate.
LDN said:
Yes this is the issue; there doesn’t seem to be a solid route to go and the solicitors seem to not know what they’re doing - to be frank.
We get told different things by different members of their ‘team’ - but this is a lot of money and we don’t appreciate the mixed messages.
The value is probably somewhere in between the two figures, realistically... but that’s nearly a year on from probate.
You have to show that you have done the job diligently. We get told different things by different members of their ‘team’ - but this is a lot of money and we don’t appreciate the mixed messages.
The value is probably somewhere in between the two figures, realistically... but that’s nearly a year on from probate.
Values move so the it's the value at death that matters. If you can show you got a value promptly and from a competent source then I am confident that's enough.
I was told this by an experienced IFA and 2 law firms. All the online stuff I have read concurs so I sleep easy.
desolate said:
LDN said:
Yes this is the issue; there doesn’t seem to be a solid route to go and the solicitors seem to not know what they’re doing - to be frank.
We get told different things by different members of their ‘team’ - but this is a lot of money and we don’t appreciate the mixed messages.
The value is probably somewhere in between the two figures, realistically... but that’s nearly a year on from probate.
You have to show that you have done the job diligently. We get told different things by different members of their ‘team’ - but this is a lot of money and we don’t appreciate the mixed messages.
The value is probably somewhere in between the two figures, realistically... but that’s nearly a year on from probate.
Values move so the it's the value at death that matters. If you can show you got a value promptly and from a competent source then I am confident that's enough.
I was told this by an experienced IFA and 2 law firms. All the online stuff I have read concurs so I sleep easy.
"HMRC expects the person seeking the professional valuation to explain the context and draw attention to the definition of market value in IHTA 1984, s 160 (see above), and provide the valuer with all the relevant details concerning the land and property, including copies of any agreements (e.g. leases), or full details where only an oral agreement exists.
The ‘high risk’ nature of a land valuation increases the possibility of challenge, particularly where HMRC suspects that the valuation may be too low (see Hatton v HMRC [2010] UKUT 195 (LC)). However, this will not necessarily result in an increased value being attributed (see Chadwick and another v HMRC [2010] UKUT 82 (LC)).
Penalties? Not necessarily…
HMRC review undervaluations to look for cases where penalties should be charged. However, in Cairns v Revenue & Customs [2009] UKFTT 00008 (TC), a professional executor who submitted an IHT account on a deceased individual’s death containing a property valuation that later turned out to be too low successfully appealed against penalties sought by HMRC.
In that case, HMRC argued that Mr Cairns should have obtained another professional valuation or revisited the valuation already obtained, and that there had been a wilful default. However, the tribunal held that ‘…the mere failure to obtain another valuation when it has not been established that a second valuation would have led to a different figure being inserted in the statutory form does not constitute negligent delivery of an incorrect account.’
Practical Tip:
HMRC’s Inheritance Tax & Trusts Newsletter (August 2009) featured a report on its Annual Probate Section Conference, which indicated that if instructions for the valuation of a property were given on the correct basis, any uplift in value subsequently agreed was ‘unlikely’ to attract a penalty. The ‘correct basis’ was defined as: ‘… a hypothetical sale in the open market under normal market conditions and marketed properly with no discounts for a quick sale or for the time of year etc.’ "
Hope that helps.
The ‘high risk’ nature of a land valuation increases the possibility of challenge, particularly where HMRC suspects that the valuation may be too low (see Hatton v HMRC [2010] UKUT 195 (LC)). However, this will not necessarily result in an increased value being attributed (see Chadwick and another v HMRC [2010] UKUT 82 (LC)).
Penalties? Not necessarily…
HMRC review undervaluations to look for cases where penalties should be charged. However, in Cairns v Revenue & Customs [2009] UKFTT 00008 (TC), a professional executor who submitted an IHT account on a deceased individual’s death containing a property valuation that later turned out to be too low successfully appealed against penalties sought by HMRC.
In that case, HMRC argued that Mr Cairns should have obtained another professional valuation or revisited the valuation already obtained, and that there had been a wilful default. However, the tribunal held that ‘…the mere failure to obtain another valuation when it has not been established that a second valuation would have led to a different figure being inserted in the statutory form does not constitute negligent delivery of an incorrect account.’
Practical Tip:
HMRC’s Inheritance Tax & Trusts Newsletter (August 2009) featured a report on its Annual Probate Section Conference, which indicated that if instructions for the valuation of a property were given on the correct basis, any uplift in value subsequently agreed was ‘unlikely’ to attract a penalty. The ‘correct basis’ was defined as: ‘… a hypothetical sale in the open market under normal market conditions and marketed properly with no discounts for a quick sale or for the time of year etc.’ "
Hope that helps.
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