Capital Gains Tax (CGT) Personal Representatives Guide – Valuation of the Family Home and the Administration of Estates

The Family Home and other property

In accordance with HMRC requirements it is now increasingly common to instruct the preparation of a market valuation for property for Inheritance Tax purposes at the deceased’s date of death in accordance with the RICS (Royal Institute of Chartered Surveyors) Appraisal and Valuation Standard Guidance Notes.

In addition and in accordance with the decision reached in Prosser v The Commissioners of Inland Revenue [2002] WTLR 259 it was held that normal practice is to assess the value of the property and for the valuation to comment on and where appropriate add on an element for hope value.

Why valuation is important?

A written valuation confirms the professional opinion of a qualified Surveyor regarding the value of the property for Inheritance Tax calculations and is useful to set the base value of the property for any future Capital Gains Tax considerations.

Where this may be impactful

1. In a more straightforward estate the family home can often be the main asset of the estate. More complicated estates may need additional consideration and you are urged to contact us for advice regarding those. 

2. The value of the property agreed by HMRC confirms the value included as part of the assets in the estate upon which Inheritance Tax (IHT) may be payable. A RICS valuation can ensure that less enquiries are needed to be made by HMRC in confirming the date of death value.

3. It is now important to recognise that delay regarding that valuation or changes to CGT allowances may cause CGT to be paid.

3.1       Delay – Whilst HMRC may have agreed the value of the property for IHT purposes HMCTS (The Probate Registry) have explained that

“Due to high demand, we’re updating our expected timeline to be granted probate to up to 16 weeks within submitting your application. It can take longer if you need to provide additional information, but the majority of applications will be processed sooner if there is nothing wrong with the application. As we endeavour to reduce contact and complaints by focusing our resources on issuing grants, we kindly ask all users not to contact us until 16 weeks have elapsed.”

Considering what happened during lockdown many property values increased rapidly. Whether that trend continues in the current market needs to be monitored.

 3.2       Changes to Capital Gains Tax (CGT) – The Chancellor Jeremy Hunt announced in his Autumn Budget Statement on 17 November 2022 that the CGT free-tax allowance  reductions from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.

4. Consideration must now be given to:
   • the time it takes to obtain a Grant of Representation (PRs) (in simple terms the final title document confirming that the PR(s) have power to sell the property) and the future reductions in the CGT Allowance which the Personal Representative can claim to offset any Capital Gains (in the tax year in which the sale takes place).

4.1       the availability of any charitable exemption where all or part of the property is given to a Charity. Here the Charity must agree to any transfer to them and an appropriation of the property be made to the Charity before the sale contract is exchanged (so that Charity Exemption may be claimed);

• • the availability of any CGT Allowance in the relevant tax year (or any unused part of it). Generally, Personal Representatives are entitled to utilise the deceased’s CGT allowance for the tax year in which the death occurred and the following 2 tax years.  If sale prices continue to rise then it may be that the agreed sale price will be higher than the date of death valuation agreed by HMRC for IHT purposes and that a Capital Gain occurs due to the increase in value;
  • the possible transfer of the property to taxable beneficiaries who inherit the property (before the sale contract is exchanged) to minimise any Capital Gain before sale takes place. This is in order that they may utilise their own CGT exemption(s) in relation to the sale (where available);
  • the requirement to report any Capital Gain(s) Taxpayers have 60 days from the date of completion (not the date of exchange of contracts) to report the property disposal and make payment of the CGT on account to HMRC.

Late filing penalties may be charged, together with interest on any unpaid tax. In certain circumstances, a 60-day return may not be required, for example if the taxpayer has already submitted a self-assessment tax return reporting the disposal.

A tax computation must be prepared as part of the 60-day reporting, in order to calculate the estimated tax due. The payment on account must then be made within 60 days of completion.

It is recommended that an Accountant is instructed to deal with that reporting as HMRC are increasingly keen for Taxpayers to use online reporting and Accountants usually have the required software in place.

We understand this can be a very complex matter to understand, that is why we offer a free 30 minute initial consultation and transparent fixed fee work undertaken by our STEP accredited solicitors.  Contact us via our website, telephone or email to arrange your free appointment or to instruct us to assist.