Increase in estate value after grant of probate

[Esempe]

Please forgive the long story but I think it’s all needed to fully understand the question at the end.

My late mother died in February this year, I dealt with her estate myself, have received a grant of probate and distributed her estate as per her will to myself and 3 siblings.

When I completed the IHT Estate plan I valued her property at £300,000. This was based on the most recent sales of similar properties in the same road plus a little market increase over time.

The total value of moms estate was around £280k well within the IHT threshold applicable to her estate of £425k as she left her estate solely to her surviving children. Leaving a good deal of unused IHT allowance.

As Mom owned a 50% share of the house as a tenant in common with her partner her share was worth £150k though this was reduced by 10% to £135k for the purposes of the IHT return as the remaining 50% was not owned by a relative or spouse.

4 Months after this valuation her surviving partner also died leaving his share of the house to his 3 children and between the 7 of us we have now decided to sell the property.

Having now had 2 independent estate agent valuations on the house at £300k I am happy that my original valuation was correct. However, as the house has a 300ft garden with vehicular access both of the valuing agents have said that there is a much greater value in the garden if this was to be split from the house and sold separately to a developer as a plot with building potential. Their valuation of the house and smaller garden plus the building plot is approx £500k. This opportunity would have existed in February but I didn’t spot it , had I done so then I would have declared a higher valuation at the time.

Moms share of this would be £225k (£250-10%) which increases the value of her estate to around £370k but this is still below the IHT threshold of £425k so I don’t have to inform HMRC of the change because there’s no change to the duty due.

My understanding is that the difference between the valuation in Feb and the eventual sale value will be subject to CGT.

So, finally to the question! Can I avoid the CGT liability and use up some of the unused IHT allowance by informing HMRC that I’ve messed up on the initial valuation?

Thanks for giving it your time to read to the bottom!

[Lee Young]

In your circumstances the CGT base cost has not been fixed. When you sell the property it will therefore be for you to declare what you consider to be your share of the gain on your self-assessment return. Had the increase meant that IHT was payable then this would set the CGT base cost in any event.

[Esempe]

Thanks for the quick response Lee, I follow what you're saying.

However on reading other posts of a similar nature I've been led to understand that the value for the house as stated on the IHT estate plan (and upon which basis probate was granted) is the established CGT base cost. My siblings and I inhereted Moms 50% share in the house and will now sell it at what will appear to be a great profit and under normal circumstances should rightly each declare our ' profit ' on our tax returns. However, if we take the new and higher estimated value of her share in the house and correct the estate plan thereby establishing a new (and higher) CGT base cost then there would still be nil IHT due (as the total value of the estate is still below the threshold) and also nil CGT (because there's no gain or if there is it should be minimal and within everyone's allowance).

Had there been a great passage of time between moms death and the eventual sale of her share in the house then I wouldn't be asking this question. It is simply that I made a mistake in valuing the house at a lesser number than I should have and am now wondering (as it was only done in May) if sending a correction for the IHT return to HMRC is the correct course of action or is there another way in which we can offset the gain against unused IHT allowance once a sale is completed.

Thanks again.

[maths]

Haven't read all the above but what I think Lee is saying is that unless a liability to IHT arises on the estate, whatever value appears in respect of an asset in any return does not form the base cost for CGT.

Where an IHT liability does arise on the estate then any value attributable to an asset is "ascertained" and is then the base cost for CGT.

[Esempe]

Ah, I see, now I fully understand, thanks for the clarification.