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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25358
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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My Father died recently and left a property to his three daughters.

Resolved Question:

My Father died recently and left a property to his three daughters. Two of us intend to have a joint mortage and buy the younger sister out. Probate has been granted and no inheritance tax is liable as the estate was under £325k. Presumably any money my younger sister gets from the property is therefore not liable to Capital Gains Tax? Should we subsequently sell the property in years to come and it sells for more than probate, is there a time limit when we have to let the HMRC know of the difference between probate and the actually sale price and, therefore, I presume liable for inheritance tax?
Submitted: 3 years ago.
Category: Law
Expert:  Joshua replied 3 years ago.

Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

Joshua :

please accept my sympathies for the loss of your father.

Joshua :

May I ask if you obtained a formal valuation of the property as part of obtaining probate and in any event, what value you gave for the property on the IHT205 estate return form you completed for HMRC?

Customer:

Yes I had three separate estate agents who gave the same probate figure, as a very similar property on the same road had recently been sold. We intend to rent the property .. but as you can never know what the future holds, I wondered if there was a time limit on letting the HMRC know if the property is sold say in five/ten years time at a higher price (which given property prices being on the rise, I presume it would)

Joshua :

thanks. The position is that for the purposes of capital gains, you acquire the property at the value declared the probate. So for example say the property was declared as being worth £300,000 for the purposes of probate, as beneficiaries, you acquire the property for £300,000 and capital gains tax is assessed on any difference between £300,000 and the amount you later sell the property for

Joshua :

if the property is sold shortly after probate is obtained (usually taken to be within the 2 to 3 years following the anniversary of death) for significantly more than the probate value or if you now consider that the probate value was too low for some reason, it is possible to request a post transaction valuation to revalue the capital gains base value at which you acquire the property by using CG 34 procedure. however, if this is considered, care should be taken not to increase the value so as to give rise to an inheritance tax liability as inheritance tax is charged at a higher rate than capital gains tax.

Joshua :

if you decided you wanted to avail yourself of the CG 34 procedure the below is the form you require:

Joshua :

www.hmrc.gov.uk/forms/cg34.pdf‎

Joshua :

the former submitted with evidence of the reasons for your request for a revaluation, in the above example evidence of the sale price achieved, and HMRC will decide with the assistance of the district valuer whether they are prepared to approve the revaluation or not.

Joshua :

Is there anything above I can clarify for you?

Customer:

So just to clarify, if we sold the property after three years, as you saying we would not have to advise the HMRC of the sale price even if it was higher than the probate value?

Joshua :

you do not have to submit a CG34 form whether you sell the property next week or after three years. The only reason you may wish to submit a CG34 form is if you consider that the probate valuation you submitted was wrong and you wish to apply to amend the probate valuation. based upon what you say, as you have a similar property that sold nearby recently by way of comparison, it is unlikely that you will consider that the probate valuation is wrong to any significant degree and so I doubt your wish to use this CG34 procedure but it is available if it at any time either now or in the future you consider the probate valuation was too low and you wish to revalue it to avoid CGT and you have evidence to support your view.

Joshua :

The typical scenario where the CG34 form is used in relation to probate is where the property letter say is valued the probate at £200,000 but then 9 months later the property sells for £300,000. this would leave the beneficiaries with a £100,000 gain on which they would have to pay capital gains tax but the fact that the property has sold for so much more than the probate valuation so soon is good evidence to support that the probate valuation was wrong in the first place and the beneficiaries can use the CG34 procedure to apply to revalue the probate valuation to £300,000 to avoid a CGT gain. obviously, the property sells 10 years later the £300,000 then this is not good evidence at all to support that the probate valuation was wrong as properties typically gained value over time and the CG34 application in these circumstances would almost certainly be rejected

Customer:

Thank you, XXXXX XXXXX sense. So when we give our younger sister a lump sum for her share of the property, she is not liable for any tax on it? Does she have to declare it at all?

Joshua :

in the assumption you will be using the probate valuation as the basis for calculating her share of the property (though do bear in mind you could propose a reduction to take account of her share of legal and sale costs of a hypothetical sale of the property - i.e. a one third share of a property worth £300K is not £100K because in order to realise the share one has to pay legal costs and agents fees) then there is no tax upon her receiving this money nor would she have to declare the money to the revenue.

Joshua :

Does the above answer all your questions or is there anything I can clarify or help you with any further?

Customer:

.. last question .. and because her personal circumstances are so different from ours, if we decided to give her a higher share of the property, then I presume she would have to declare the full amount and pay tax on the difference between the probate share and the actual sum we give her.

Joshua :

No there would still be no tax for her to pay because based upon what you say, there is no inheritance tax due on the estate and there is no gain on the asset. all that is happening is that you are deciding to give her part of your entitlement. This does not alter the tax position.

Customer:

Got it .. thank you very much indeed, really helpful, do appreciate your time. Thankyou

Joshua :

A great pleasure.

Joshua :

If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with please reply back to me though.

Joshua, Lawyer
Category: Law
Satisfied Customers: 25358
Experience: LL.B (Hons), Higher Prof. Dip. Law & Practice
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