Future IHT

[bb41]

I have a query .. FIL died intestate last August, after lots of faffing by the oldest son trying to do probate himself he finally agreed to get a solicitor to take over . He'd been so heavy handed with the bank that they thought my MIL was being coerced by her son and DIL

The FIL had a property but it does have an agricultural the and in a very poor state of disrepair . I told the son that he will need to get it valued as although his Mum doesn't pay IHT it will still be a requirement.

Solicitor confirmed this. I did tell him he will need agents who specialise in property with an ag tie but he didn't and used the worst possible agent for that area who deal mostly with small FTB properties

My estimate on the property would be no more than 450k , one agent valued it at 500k but the agent he used valued it at 800k

This will go down as the probate value.

My question is as my MIL is in poor health and will either pass away or have to be in a care home environment I'm not sure how this valuation will affect future IHT .


If the probate value is 800k now and for arguments sake MIL passes away in 2 years or more, surely the probate value would start at that amount plus inflation, causing an over inflated IHT position .

I know when the property is sold then any tax which is paid upfront will be re-imbursed but as IHT has to be paid before probate is given the amount on the over inflated IHT will surely have a big impact

Can anyone shed some light on this at all please ???

[des8]

To avoid future possible problems If probate has not yet been applied for, and the solicitor is now handling matters, why not advise the solicitor (in writing?) that you have serious concerns about that valuation.
Ask him if an RICS report has been prepared as "although no statutory obligation exists, HMRC strongly advocate the appointment of a Chartered Surveyor and RICS Registered Valuer to undertake a formal valuation of the property in accordance with the Royal Institution of Chartered Surveyors (RICS) ‘Red Book ’ in satisfying the requirements of Section 160 of the Inheritance Tax Act 1984 “which defines “Market Value” as the price which the property might reasonably be expected to fetch if sold in the open market at that time and that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the open market at one and the same time”." (quote lifted from a property agency website!)

[bb41]

To avoid future possible problems If probate has not yet been applied for, and the solicitor is now handling matters, why not advise the solicitor (in writing?) that you have serious concerns about that valuation.
Ask him if an RICS report has been prepared as "although no statutory obligation exists, HMRC strongly advocate the appointment of a Chartered Surveyor and RICS Registered Valuer to undertake a formal valuation of the property in accordance with the Royal Institution of Chartered Surveyors (RICS) ‘Red Book ’ in satisfying the requirements of Section 160 of the Inheritance Tax Act 1984 “which defines “Market Value” as the price which the property might reasonably be expected to fetch if sold in the open market at that time and that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the open market at one and the same time”." (quote lifted from a property agency website!)

Hi Des,,, when I was in the same position I did get a chartered surveyor on my late Mums house as it was advised that this would be a more realistic valuation.

My thoughts are that this will cost which is why I suspect an bog standard estate agent was used . I will have a look at that section 160... thank you

[Peridot]

Hi BB41,

When the time comes a further valuation of the property will be required,for the date MiL dies, if it is still one of her assets. HMRC may raise a query at that point as to why, (if it is the case) the property value has dropped substantially (or not increased as would be expected at the time).

Provided it can be evidenced that the first valuation was not appropriate or was inaccurate and that the more recent one is correct (RICS probably best as Des8 suggested) then it shouldn't be an issue for the executors of MiL estate.. The cost of the valuation would be payable by the estate.

It isn't an insurmountable issue but may well be something that you or the executor of your MiL could do without when the time comes.

The executor of FiL estate may have to answer to HMRC if they raise a query, as may the estate agent who provided this valuation.

The original valuation would need to be produced and explanations given for the reasons for their valuation and or the discrepancy, at that time.

I would suggest it is better to get it correct now, but don't panic if it isn't. A corrective account can be provided to HMRC at this point if the estate decides to deal now.

[bb41]

Thank you Peridot... it was my concern that the discrepancy will be high and HMRC will indeed question this valuation.

Also if I can ask when MIL does pass will there be any tax concessions which can be carried forward from FIL estate?? as I believe the solicitor has said that at the current rate if MIL passes away then there would be hardly any tax to pay on the estate which seems odd, as when my Mum died I had no such luck !!!!

[Peridot]

Hi again,

The IHT liability will very much depend on what the value of her estate is when the time comes and whether your FiL (her husband I assume) left his estate to her or made other legacies?

In a nutshell everyone has a Nil Rate Band Allowance (NRB), currently £325,000 (Mar 2018). If the estate is valued over that amount then inheritance tax would be payable on the amount over £325,000. However, a spousal exemption applies on those assets left to them under their spouses Will. For example if the whole estate is left to a spouse, there will be no IHT payable. When the survivor of the couple dies the NRB will also apply to their estate plus the amount of any unused NRB of the pre-deceased spouse. The unused NRB would be added to the 2nd spouses NRB allowance so IHT will only be payable on assets over and above the amount calculated when the 2 figures are added together.

It will depend whether any gifts are left under the 1st Will and the value of those gifts, but potentially if everything is left to a spouse then with the transferable NRB the estate value could be £650,000 before IHT is payable.

It may be easiest to give a working example.
A is married to B.

A leaves the whole of their estate to their spouse the available allowance would be £325,000 but a spousal exemption applies so no IHT payment would be due.

If A dies leaving £25,000 to child C but the rest of the estate to spouse B
The current NRB allowance is £325,000, the spousal exemption also applies to those assets left to the spouse. As the gift left to C is not above the current NRB allowance no IHT will be payable (as everything else is left to the spouse and attracts the spousal exemption).

When B dies they have their own NRB allowance but in addition they also have the 'unused' NRB from their spouses allowance.
A left £25,000 to C so the available NRB that can be transferred will be £300,000.
B's total allowance before IHT becomes payable will be £325,000 plus £300,000 so £625,000.


The available allowance used will be the NRB in force at the time of the 2nd death, so if there is an increase in the NRB between the two deaths, then the current figure is used at the date the 2nd person died.

It will depend if any gifts are left under the 1st Will and the value of those gifts, but potentially if everything is left to a spouse then with the transferable NRB allowance the estate could be valued at £650,000 before IHT is payable.

I hope this helps. There are other exemptions available such as Agricultural and Business Property Relief but you can't benefit from a double exemption, so it will be important how the Wills are drafted, to ensure the maximum exemptions are available and utilised if a couple has a business or agricultural property.

[bb41]

Thank you that is an excellent reply and answered clearly... thank you