.png)
.png)
Agricultural land which qualified for 100 per cent inheritance tax agricultural property relief on the owner's death was sold at auction by the executor in four separate lots some six months after the death. The total sale proceeds far exceeded the value provisionally returned for the land for inheritance tax purposes with the consequence that the executor is now deemed to have realised taxable gains. In fact, land values in the locality did not rise to any material extent over the period concerned and so it is evident that the death valuation was far too low.
Agricultural land which qualified for 100 per cent inheritance tax agricultural property relief on the owner's death was sold at auction by the executor in four separate lots some six months after the death. The total sale proceeds far exceeded the value provisionally returned for the land for inheritance tax purposes with the consequence that the executor is now deemed to have realised taxable gains. In fact, land values in the locality did not rise to any material extent over the period concerned and so it is evident that the death valuation was far too low.
The solicitor acting in the administration of the estate has discussed the matter with the Capital Taxes Office but that office said that it would not amend the values for 'accuracy alone' and the solicitor considers that a corrective account would not be appropriate in the case.
Readers' views are sought as to how it might be possible to have the death valuation revised to secure a fair result for capital gains tax purposes.
(Query T15,892) – Maigret.
For capital gains tax purposes, it is legitimate to submit a new valuation for the consideration of the District Valuer under the CG34 procedure explained in the Inland Revenue Capital Gains Manual.
This valuation will be under section 272, Taxation of Chargeable Gains Act 1992, which will be done on a similar basis to that adopted under section 160, Inheritance Tax Act 1984, except to the extent that either the special inheritance tax valuation rules imposed by sections 49(1) and 161, Inheritance Tax Act 1984 or amalgamation lotting under Lady Fox's Executor v Commissioners of Inland Revenue [1994] STC 360, is in point on the particular facts of the case. There is no indication of either being present here.
Sub-division lotting under Duke of Buccleuch v Commissioners of Inland Revenue [1967] 1 AC 506, does, however, fall to be taken into account for the purposes of section 272 and it would be legitimate to take account of the actual mode of subsequent sale under this principle.
Quite apart from this, six months is well within the two-year period during which the Inland Revenue has, historically, seen it as appropriate to increase the probate values of properties subsequently sold on the basis that subsequent events provided actual evidence of the state of the market at the date of death in the absence of evidence to the contrary.
Although section 274, Taxation of Chargeable Gains Act 1992 provides for the inheritance tax value on death to be adopted as the capital gains tax acquisition value, this only applies where the value has been 'ascertained'. In the Inland Revenue's view, no ascertainment takes place where no taxable value arises. Accordingly, the view is taken that, where an asset passes to a surviving spouse, the exemption means that section 274 is not in point. The same applies where 100 per cent agricultural or business property relief applies, provided that this relates to the whole of the asset. If the agricultural land had had hope value which was only relievable under 50 per cent business property relief, it would have been necessary for there to be an ascertainment of the value of part of the property, and section 274 would have overridden section 272, but (on the facts as given) this factor does not seem to be present. – WjdeS.
'Maigret's' attention is drawn to a similar query which appeared just under a year ago ('Bumper Harvest', Query T15,722 in Taxation, 7 December 2000 at pages 283 to 284).
He is concerned with mitigating the capital gain on disposal of a piece of farmland following the death of its original owner. Section 62(1)(a), Taxation of Chargeable Gains Act 1992 would normally give its base cost as the market value on death (probate value). So, what is the probate value?
An Inland Revenue account has been submitted and this should detail the value of the land for inheritance tax purposes, though it is admitted that this was only 'provisional'. Given that inheritance tax and capital gains tax have their own discreet rules for valuation, this does not necessarily give the answer anyway. Indeed, Inland Revenue Interpretation RI 152, following from Gray (Executor of Lady Fox deceased) v Commissioners of Inland Revenue [1994] STC 360, draws some particular distinctions.
However, section 274, Taxation of Chargeable Gains Act 1992 says that, where the value of an asset has been ascertained for the purposes of inheritance tax (when forming part of an estate on death), then that value is to be taken as the market value on death for capital gains tax. Note that the value must be 'ascertained'. In the present situation, the value of the land attracted 100 per cent agricultural property relief so that no tax was due.
The value is only ascertained if the Capital Taxes Office has used that value in order to arrive at a final charge to inheritance tax and the amount of the liability was dependent on that valuation. If the asset in question is the subject of an exempt transfer or covered by reliefs, then no tax is due and the value cannot have been ascertained – see Inland Revenue Capital Gains Manual at paragraphs 32222 to 32224. If the value has not been ascertained for inheritance tax, then the probate value for capital gains tax must be determined from normal principles (see paragraph 32230).
'Maigret' may therefore submit a capital gains tax computation using a correctly determined probate value. It is to be hoped that this is done by reference to a professional valuation, as it may be the subject of negotiation with the District Valuer.
Of course, there is a statutory provision in section 191, Inheritance Tax Act 1984 which may be of use. This is intended as a relieving provision where property is sold at a loss within three years of death. The claim covers all such properties even if some are sold at a gain. It would normally be invoked only where there is a net loss. It seems that the Revenue has conceded that a higher value may be substituted even where no inheritance tax is due on the property concerned but there is an overall liability on the estate (see Simons Direct Tax Service at 14.311). However, the same commentary goes on to say that the Revenue has a policy of resisting such claims where no inheritance tax is payable at all. This is because there is no appropriate person to make the claim. The appropriate person is given in section 190(1), Inheritance Tax Act 1984 as the person liable for the inheritance tax. In the present circumstances we are not told whether any inheritance tax was payable on the estate and, in any case, this seems a rather abstruse way of achieving the desired effect.
One must be wary of submitting inheritance tax accounts with provisional figures carelessly determined. Chris Whitehouse (see Taxation, 29 June 2000 at page 338) warns that the Capital Taxes Office has invoked penalties in such cases even where the correct figure has been substituted after an executors' sale and the correct tax paid on time. This practice seems not inconsistent with the published practice on penalties exemplified in the CTO Newsletter of August 2000. Perhaps the only reason that the Capital Taxes Office would not amend the values here is that 100 per cent relief is due. This does seem odd in the light of a recently observed (but apparently unpublished) practice whereby the Capital Taxes Office tends to substitute the proceeds of sale for the value in the inheritance tax account where there is a disposal within twelve months of death. – The Snark.
