Executors cannot claim for property sales above probate value

31 January 2013

HMRC has revised its inheritance tax manual to make clear that executors should not submit claims for a higher sale value for land or buildings sold within three years of the date of death.

Tax inspectors are now instructed to deny all such claims whether or not there is tax attributable to the value of the land. If there is no such tax ‒ either because the estate is too small, or the sold land is exempt or attracts 100 per cent relief ‒ then no ‘appropriate person’ exists to pay the tax or claim any associated relief under s.191 of the 1984 Act. HMRC says this view was upheld in Stonor decision in 2001.

If the estate was taxable, HMRC will reject the claim on the grounds that section 191 is only intended to provide relief from inheritance tax. ‘Any claim to substitute a higher sale price where the estate is taxable must be rejected as invalid. If the taxpayer or agent continues to insist that a higher sale value be substituted the claim must be referred to Technical’, says the new guidance, again citing Stonor as its authority.

The implication is that, for capital gains tax purposes, the executors must calculate the chargeable gain on the disposal using the market value at the date of death.

The new manual at least resolves the dilemma of whether executors should report such a sale. ‘Now, provided they obtained a RICS valuation for probate, it is quite clear that HMRC will not accept any increase in value,’ says the Institute of Chartered Accountants in England and Wales.

Sources

HMRC

HMRC (IHT manual)

Institute of Chartered Accountants in England & Wales