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Is this a second home please or your primary home you live in?
Sorry, maybe harder than you thought. We are U.S. citizens and the vacant property was inherited. We have paid 40% IHT based upon appraisel in December. The house is still in the estate and a recent evaluation placed the home at about 100k GBP greater than the original evaluation. We have the choice of keeping it in the estate and paying 40% for any gain above the original evaluation or, reclaiming 40% if the amount of repairs brings the sales price below the original evaluation. If we place in our names (out of the estate), the estate attourney states that they have no choice but to contact the district valuer and he will most likely re-value and we would pay estate tax on the re-valuation. If it sells for less, in the future we would not be able to re-claim any overpaid tax. We are thinking a third option is to not sell the property (thereby avoiding a re-valuation) transfering out of the estate into our names then at some favorable time, sell the property and pay Capitol gains of 28%. If the markets are improving and there is a chance it will be worth considerably more next summer it might make our decision to hold onto the property and sell at a later date. Our fundamental question as you know; Is it better to sell now or wait? Will the district valuer be called in if we decide not to sell at this time and cause us to have to pay additional tax. Yikes! Thanks, Mark
For clarification; The attourney states that if we are to sell immediately at a signficantly higher price, the District Valuer will not accept this and this is why the attourney wants to allert the District Valuer. We are thinking that if we keep the property and not list it for sale then there is no reason for the attourney to call the district valuer in for an adjustment in valuation since it will not be put up for sale but kept as a holiday house. Once transferred into our names we can choose to sell at a later date and the IHT has no additional claim for 40% tax if it sells for more. Vice Versa, if it sells for less, we understand we cannot re-claim the 40%. We understand that we are gambling that it will sell for more than the original evaluation. We do feel that improving the look of the property, clearing brush, trees for view, cleaning the house, which was a mess and, the season, are responsible for improved value however probably not 100K GBP. Thank You for your help in this matter. Cheers, Mark
My apologies for the delay in reverting to you.
May I clarify - you ave a UK solicitor assisting you with administration of the estate?
Have you obtained something called a clearance certificate from HMRC in respect of the estate and particularly the property you refer to?
We are the beneficiaries and a friend of the deceased is the executor. The estate is being handled by a Solicitor. The Solicitor refers to the executor as their client. We have not obtained clearance certificate yet but I believe all the paperwork has been submitted.
Thanks. The solicitor is correct to do so. the approach here is relatively straightforward and does not require any form of gambling. the solicitor must obtain clearance certificate from HM revenue and Customs in respect of the estate before distribution can safely take place
the purpose of a clearance certificate is that the revenue certifies that having been satisfied as to the information supplied, providing the information supplied is true and material facts have not been withheld, the revenue certifies that it has no further enquiries in respect of the estate and that it agrees the figures supplied
once the clearance certificate is obtained, this will settle the valuation of the property. The revenue have a right to asked the district valuer to become involved to checking valuation figures supplied but subject as above, once the clearance certificate has been issued, whether or not the revenue has asked the district valuer to be involved, the clearance certificate settles the valuation supplied for the property
from there, the property can be sold or retained according to the wishes of the respective beneficiaries involved.
if there is any capital gains tax to be paid in respect of any gain made by the property, it can be prudent to consider transferring the property into the joint names of the beneficiaries concerned as this can increase the available allowances in respect of capital gains tax. individuals domiciled offshore are not usually subject to the capital gains tax regime
Option A- Keep the property in the estate and pay 40% on the gain above $250K satisfying the valuation
Option B-Transfer out of estate into Beneficiaries names and instigate a revaluation and immediately pay tax on the re-evaluation
Option c- Do not sell the property at this time so as to not instigate re-valuation, hope to obtain clearance and sell at a later date when only cap gains would be paid on any gain.
In our shoes, what would you advise and, do you believe real estate values will increase in the next year?
Remembering that the recent real estate valuation places the property at 350k
I cannot see that there is any real option other than to obtain clearance certificate and then from this solid basis take a decision on how to deal with the property. A clearance certificate must be obtained for the estate in order to safely deal with the same otherwise it is impossible to make any plans. Where there is more than one beneficiary it becomes all but impossible to manage the risks of proceeding without a clearance certificate so in practice I cannot see that there is any real choice.
consider that until a clearance certificate is obtained, the revenue are free to challenge any of the valuations submitted in any event.
is there anything above I can clarify for you?
Once clearance has been obtained then the property would be in our names or remain in the estate?
the clearance certificate does not make any changes to the legal title of the property. All it provides is evidence of settlement of the valuations provided for the estate property with the revenue and accordingly gives a solid basis upon which the executor can then deal with estate property. the property can either remain for the time being in the name of the executor or can be transferred into the names of one or more of the beneficiaries who intend to take the property
O.K., that is good information and you would advise not making any decisions on selling or transferring into names until the clearance has been obtained. Is that correct?
If I were acting in the estate this would be my advice to the executor generally. If clearance is likely to take some time and there are concerns regarding CGT then there can sometimes be a case for transferring the property in to beneficiaries names but careful consideration of the circumstances and terms of the will is required before doing so on which the executor would need to rely on the solicitor as detailed information on the will and estate would be necessary to proerly advise on such a decision.
Is there anything above I can clarify for you any further?
Thank you. This was probably a little more involved and you probably lost your shirt on this one but we really appreciate your help. Best Wishes, Mark
A pleasure. If I can assist any further as the situation develops please do no hesitate to let me know.
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