IHT when tax paid on part of Gift

[peelie]

Does anybody know the answer to this IHT problem?

13 years ago a mother gifted her house to her sons and continued to live there rent free. One son converted the basement into a flat with its own front door and Council Tax bills. He has rented it out and paid tax on the income ever since.

When the estate is wound up, the house will be classed as a Gift with Reservation for IHT purposes. But should the flat be included in the estate?
If it is not included in the estate, how would the value of the house be calculated to exclude the flat? The flat is about one seventh of the floor area of the house.

[Lee Young]

The gift with reservation of benefit in the basement flat would have continued until the son effectivley took up use of it and converted it. If that was more than 7 years ago then no IHT consequences.

You will need to get a surveyor to offer an opinion on the value of the constituent parts at mother's death, and if relevant when the basement was converted within 7 years of death. Offer the figures to HMRC Capital Taxes and begin negotiating.

I would not include the basement flat in the estate, but it may be brought in for IHT calculation purposes because of the timing of the end of the gift with resevation of benefit.

lxy@m-b.co.uk

[peelie]

Brilliant. Thanks.
The conversion was done 13 years ago at the time of the gift.
Would it be better to send it form IHT100 with the valuation figure for the house without the flat (and perhaps an explanation of how it is arrived at) and wait for the Revenue to come back to us?
Does it have to be a surveyor, or would a valuer or even an estate agent be able to do the job?
Thanks again.

[Lee Young]

Your valuer should value what is still in the estate, so yes, the property excluding the flat.

I would always advocate using a surveyor as they are professionally qualified and can therefore argue with the District Valuer (if necessary) from a position of strength.