From: "Troy Steadman" 
Newsgroups: uk.finance
Subject: Re: RR and JBx2: re: can the District Valuer's IHT valuation be challenged?
Date: 15 Jun 2006 00:18:57 -0700
   posting-account=R7WSowwAAAD53T0SHAPLFrX9g546w2I8

Ronald Raygun wrote:


>
> Whatever Al sells it for does not affect the estate's, or the other
> two sisters' tax position, it's purely a CGT matter for Al.  But if
> the whole house counts as Al's PPR, she escapes CGT entirely.

There is a CGT liability for the estate on the gain in value between
time of death and time of sale. Here's the advice in full:



I would assume, in the first place, that Al and his Mother owned the
property on the basis of a tenancy in common in equal shares.   That
the Mother by her Will left her half share to her two Daughters but
gave Al an option to purchase.  There would be certain criteria
concerning that option in the Will.

As far as the valuation of the Mother's share is concerned there are
two issues.  The first is the "practical" value of the property and
hence the due proportion thereof.  The second is what factors that are
peculiar to the situation which may affect that value.   The first is
decided upon by the District Valuer, the latter after negotiation with
the Examiner at the Capital Taxes Office.  For example, in the first
instance, the District Valuer will look at the area, the condition of
the property, both internal and external, the size of the rooms, etc.
and value therefrom.  As to the second, the effect on that value of the
rights of any joint owners, in certain circumstances tenants, the
effect of any disputes and such like.

As to procedure, following receipt by the Capital Taxes Office of the
Account, the Examiner will send to the appropriate District Valuer, the
relevant schedule.   The DV will check his records and report back that
the valuation is either too high, too low or about right.  For the
former two, if instructed by the CTO, the DV will make contact
accordingly and negotiate and agree with the Executor a probate value.
 He will then report accordingly to the CTO.   The District Valuer's
Office is, of course, an arm of the Inland Revenue.

If the second issue is not applicable that value then becomes the
probate value for both Inheritance and Capital Gains Tax purposes.

On the first point, from a civil point of view, the Revenue could not
subsequently challenge the agreed valuation.   Obviously, from a
criminal point of view, if there was fraud, corruption or bribery then
they could.  Where Inheritance Tax is paid by an Estate the Executor at
the conclusion thereof will make application of the Capital Taxes
Office for a Clearance Certificate.   For a Certificate that all tax
that is due to be paid has been paid.  Prior to granting such the
Revenue will check their files and if satisfied will issue a
Certificate but it is limited with respect to the value of the assets
disclosed and the information given with respect thereto.   If an asset
therefore subsequently comes to light, they will be able to claim the
tax on that.   Likewise, therefore, as far as the second point is
concerned, if anything has been overlooked or misinterpreted then the
Revenue can reassess the value and claim the tax accordingly.

That is the theoretical position.   In practice, when it comes to the
valuation of a property, the DV is most careful in checking the
figures.  As to the second point, any discount on the value will have
had to have been carefully argued and the appropriate evidence
supplied.  Any mistake is highly unlikely.

Sections 190/198 of the Inheritance Tax Act 1984 do allow for the
substitution of the sale price for the probate value but these are at
the behest of the appropriate person.   The person paying the tax.  Not
the Revenue.  Such provision was originally introduced to cover the
circumstances of a drop in the value of property.   Frequently property
was sold to pay the tax.   The lower sale price could then in certain
circumstances be substituted.

Attempts have been made to substitute the sale price for the probate
value when the market value has risen and the value of the Estate is
below the appropriate tax threshold.   The Revenue do not like such
applications, generally will not entertain them but there is nothing in
the appropriate Sections to say that they apply only where house prices
drop.

Essentially, unless there has been some malpractice, there is no way
whereby the Revenue can increase the probate value and therefore the
amount of Inheritance Tax due on the Mother's death.

There is a problem though with Capital Gains Tax.   On the February
valuation [of =A3600k]there is a gross gain for each Sister of =A345,000.
 That to some degree can be reduced - acquisition costs - but unless
there have been any substantive improvements, there is quite a
liability to the tax.  If the Sisters are married they can halve their
respective gains by gifts appropriately to their respective Husbands.
There will still be quite some liability to the tax.

We have until November this year in which to effect a Deed of
Variation.   I imagine that Al is raising the monies to pay out his
Sisters by way of a mortgage and it seems a shame that in so doing a
proportion will be paid to the Revenue.  The subject of values, etc. by
Variation, the half share given to the Sisters could be given to him
but charged with the payment of a legacy to them.  Surprise, surprise
the legacy being equivalent to the half value but no Capital Gains Tax.


I was careful to say, earlier, that there was no further Inheritance
Tax due on the probate value as at the date of the Mother's death.   I
think options are unaffected by the Finance Bill but I would like to
check.   There is another reason for the Deed of Variation route.

If the Mother owned the property absolutely and had left a half to Al
and a half to her Daughters, subject to the option, then basically the
above is still applicable.   There would then be no discount to take
into account Al's ownership of a half share at the time of the Mother's
death but again, essentially, unless there has been any malpractice the
Revenue would have no grounds to challenge the probate value.



Al is thinking that the DOV should in fact skip a generation, and leave
the property to Homey - Al's son who you may remember will always live
at home...