The base value of an asset held on death for CGT purposes is the IHT value, but what is the correct way to establish the value if it has not been “ascertained” in the technical sense of being agreed for IHT purposes? Terry Jordan answers a query for Taxation magazine.
Is there an easy way to arrive at a property valuation on death?
I have acted on behalf of a client for several years. I recently completed her tax return for the year ended 5 April 2014 and this included a declaration of a capital gain on the sale of a flat.
The client is a widow and the flat was purchased in 1999 when her husband was alive. It cost about £150,000 and a further £8,000 was spent on installing a new boiler and windows. The property was sold in 2013/14 for £250,000. It was never used by the couple as their only or main residence.
Unfortunately, the client omitted to tell me that the flat was purchased in the joint names of herself and her late husband and she has only just mentioned this. The husband died in 2007 and, because all of his estate went to his wife, there was no probate valuation of the flat.
My understanding is that, on death, his share in the property would have been transferred to his widow at the value at date of death, rather than at the original cost which would have been the case for a lifetime transfer.
I now need to submit an amended calculation of the gain to HMRC. Can I rely on similar valuations on Zoopla (the property website) or using a house price index applied to the original cost?
Query 18,474 – Esme
Reply from Terry “Lacuna” Jordan, BKL Tax
Esme’s client has realised a gain on the disposal of an investment property and it has only just been appreciated that the client inherited her late husband’s share when he died in 2007. The implication is that they owned the property as beneficial joint tenants and she became the owner by right of survivorship.
When the value of an asset is “ascertained” for inheritance tax purposes that value forms the base value in the recipient’s hands for capital gains tax purposes on a future disposal: TCGA 1992, s 274.
However, where, as here, the inheritance tax spouse exemption is available or where business or agricultural property reliefs at 100% are in point, the value will not normally be ascertained in the technical sense and it is then open to the taxpayer to argue the relevant figure with the inspector.
The inspector may instruct the District Valuer for an opinion of value as at the relevant date. The District Valuer has the benefit of local knowledge and details of sales of comparable properties in his or her area.
TMA 1970, s 8(2) provides that “every return under this section shall include a declaration by the person making a return to the effect that the return is to the best of his knowledge correct and complete”.
For an abundance of caution, Esme’s client might consider instructing a chartered surveyor to provide the value of her late husband’s share in the flat as at 2007.
As Malcolm Gunn explained in Double trouble, because the flat had never been the couple’s main residence, there is no backdating of Esme’s client’s period of ownership.