Writing for Taxation magazine’s Readers’ Forum, BKL tax consultant Terry Jordan responds to a reader’s query about inheritance tax and capital gains tax on probate property.
‘We are regularly asked to advise where a property is the main asset of the estate of a deceased surviving spouse. The executors often ask us how to balance inheritance tax (IHT) and capital gains tax (CGT) on a sale out of an estate in administration, if indeed it is possible. We have never been completely clear about the rules. We understand about appointing a property to individual beneficiaries before sale to enable personal capital gains tax allowances to be brought into play.
However if, for example, we have a non-inheritance tax paying estate we are not completely clear about the possibility of putting a higher sale price back for probate purposes, when a lower estimate has already been used. In other words, adjusting it to fit.
Taxation readers’ views would be much appreciated.’ Query 19,679 – Querist.
Terry Jordan’s reply: Has the death or probate value been ‘ascertained’ for IHT purposes?
‘The date of death or probate value automatically forms the base value on a subsequent disposal for CGT purposes only if it has been ‘ascertained’ for IHT purposes within the meaning of TCGA 1992, s 274. In a non-IHT paying estate it will not normally be ascertained in the technical sense and it would be open for the taxpayer to argue a different base value. If a property is sold subsequently for a higher figure than that submitted it may be that the sale price reflects the market value at the date of death, or it may be that there has been an increase in the value since. HMRC resists the use of the ‘loss on sale’ provisions in IHTA 1984, s 190 et seq to substitute a higher value if no IHT is payable: see the Inheritance Tax Manual at IHTM33026.
Executors are entitled to the same annual CGT exemption as an individual for the tax year of death and the next two years, so £12,300 this tax year.
The administration of an estate ends when all the assets have been ascertained and the liabilities discharged, including any IHT.
On the death of a sole owner of land the legal estate vests in the executor or administrator (see Administration of Estates Act 1925, s 1(1)). It is not required to be completed by registration. Once the grant of representation has been obtained, the personal representative may retain the property and apply to register himself as proprietor, or execute an assent in favour of the beneficiaries, or transfer the property to a third party.
The beneficiaries merely have choses in action in the estate and only obtain rights to the property when, by means of an assent, the executor indicates that the property is not required for the purposes of the administration. Although the assent must be in writing, it does not have to take the form of a deed and there is no strict requirement for a witness.
Accordingly, in some cases it will be best to assent the property to the beneficiaries. That will not constitute a disposal by the executor for CGT purposes in view of TCGA 1992, s 62(4) and the beneficiaries will each be able to set their annual exemptions against the gain on sale.’
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