IHT legally binding contracts

[Andrew01]

Hello IHT forum

Prior to death, the deceased had entered into a legally binding contract to purchase.
In this case the deceased had agreed to buy a residential property.
I have read some of HMRC guidance on binding contracts and BR relief.

For the IHT calculation
Does the deceased's estate own the money/assets that will be used to fund the purchase?
Or the residential property that their estate must purchase?

Thanks

Bill

[AGoodman]

Interesting question. The BR rules/guidance are unlikely to help you as its a different point.

I don't know the answer but the IHT position should be the same either way; EXCEPT if you own land you might be able to elect for the instalment option and pay only 10% of the IHT on the property up front (with the rest to follow). The buyer acquires an interest in the land called an "estate contract" which gives limited rights but it is still an asset.

I'd be inclined to include the property with a corresponding liability to pay the purchase price but I'd call HMRC and ask them first. Particularly if you are hoping to use the instalment option, which is only available in relation to "land" rather than "an interest in land" (so ambiguous).

The alternative is basically to ignore it and just include the cash as an asset, but it feels a big wrong to ignore a contractual obligation to pay a large sum.

You'd need to think about it a bit more if the deceased were in the middle of a chain and had also contracted to sell a property.

[Andrew01]

Following a brief phone conversation with HMRC IHT.
HMRC advised as the legally binding contact for the propery sale and purchase had been signed by both the seller (before death) and buyer.
"Contacts had been exchanged"
The deceased estate owns the proceeds of sale not the property for the IHT calculation.

[AGoodman]

That doesn't really make a lot of sense - in calling it the proceeds of sale, it sounds like HMRC may have thought the deceased was the buyer, rather than seller.

[someone]

I agree with AGoodman that none of this really makes sense.

I don't think for IHT purposes it should make much difference, given a binding sale contract it seems unlikely that the property value or the proceeds of the sale would be deemed to be different.

However, legally the position is clear, the deceased owned property at the time of death. Valuing that interest is easy as you have a willing buyer, although if it's jointly owned you might not be able to claim any impairment as, clearly, the deceased has already agreed with their co-owner to sell.

If the property was owned as joint tenants then the situation is easy, it's the property that was in the estate at the time of death, and that transferred to the other tenant who will, presumably, have to sign a new TR1 to complete on the sale but it should be straight forward to deal with. HMLR will just need a copy of the death certificate in order to show that the remaining owner has good title to sign the TR1. Any conveyancer should be able to deal with this even in the short time between death and completion.

But if it's owned tenants in common, or the deceased was the only legal owner, then the situation is much more difficult as the executors will need probate to get good title and so probably can't complete on time.

I would suggest that the first question needs to be to your conveyancer as to whether you'll be able to complete. The seller probably already signed the transfer forms but I doubt that they're able to be delivered to HMLR as they'll be dated after death.

If you can complete then really the value of the estate is not going to differ whether you consider the property itself or the proceeds of sale. If you can't complete then you're going to need experts in dealing with these particular circumstances. The situation is very complex, and potentially very costly - you may, for example, be responsible for all of the buyers costs, including legal costs related to your sale, in finding a replacement property - but I don't know whether any of that will reduce the value of the estate for IHT. Failing to complete does happen, but it's unusual, and failure to complete because of death is probably something that most conveyancers never see.

[someone]

Oh, sorry, I see that it's a contract to buy, not contract to sell - HMRCs reply confused me too!

So most of my post is moot. There should be no problem with completing, but at the time of death the deceased owned cash, not the property.