Probate & residential property

As one of the few firms of Chartered Accountancy businesses in Yorkshire licensed to undertake Probate work, we have seen an increase in this line of work over the last 6 months due to the unfortunate impact of coronavirus.

From the local council to HMRC probate is a complicated area and I know from both professional and personal experience recently, many Executors of a relative’s estate are likely to fall foul of many rules and regulations when it comes to dealing with a loved one’s private residence.

Below are a few tips & pointers to help you get things right the first time – saving you time & money at a very stressful time:

Valuation of the property

Tucked away on page 70 of the 90 page HMRC guide to completing an IHT400 (the form to be completed where Inheritance Tax (IHT) is usually payable) is a helpful tip – it says “if you get several valuations of the property … it’s okay to average the highest & lowest figures”. Many clients, with very often valuable properties fail to get a “second opinion” and this can result in paying excess IHT.

I have seen valuers’ walk round a property in less than 10 minutes and issue a valuation later that same day! Not surprisingly, these valuations show little resemblance to the price eventually paid on a subsequent sale – often causing frustration for the family and additional work to put things right with HMRC.

So, my advice where you expect to pay IHT on the estate, it’s always best to get a second opinion.

Paying the IHT applicable to the property

My experience over the last 6 months is that it is taking longer than expected to sell a deceased’s property post death, you need to allow sufficient time to not only obtain Probate (allow up to a minimum of 3 months) but then allow another 15 months to market the property and achieve a sale. The Executors should, usually, be in a better position than other sellers who will be part of a mortgage chain or moving into another property.

The only issue here is HMRC expects an IHT payment from you within 6 months of death. If it takes up to 12-18 months to get Probate and achieve a sale you must start thinking early about funding any IHT liability – 6 months will pass very quickly so you can’t really take your time emptying the property and getting it in good order.(I appreciate it’s an emotional job to do but HMRC won’t wait for its money!)

Fortunately, and once again hidden away on page 55 this time of the IHT400 guide is the answer. HMRC will permit the Executors to pay any attributable IHT in annual instalments, usually until the property is sold on the open market. It does allow up to 10 years to pay the IHT but just remember that HMRC will levy a small interest charge (currently just 2.6%) each year on the amount of tax instalments outstanding.

This should not be a problem given the current low interest rate environment, but it does allow the Executors to reduce the initial IHT payment & avoid the need for a quick and often forced sale, at a lower value.

In one example I have seen recently a client was being asked to pay almost 30% more in IHT than was necessary, resulting in unnecessary financial and emotional distress.

As soon as the property is sold on the open market the Executors will be required to discharge any remaining IHT instalments immediately.

Council Tax issues

Dealing with local authorities in the last 6 months was very difficult especially when trying to clarify Council Tax liabilities post death. You must locate the proper records and ascertain whether any arrears were outstanding or alternatively seek a refund. Not surprisingly the latter is more time consuming!

Basically, if the property is unoccupied by anyone as their residence after the relative’s death no Council Tax should be charged again until 6 months after Probate is obtained.

So for example – if a relative died January 2019 & Probate was granted a year later in January 2020 you should have no Council Tax liability until July 2020 – hopefully you manage to sell the property quite soon after obtaining Probate (legally it’s difficult to complete the sale until then) then no further amounts will be payable.

To give this “relief” it’s technical term just look up “Class F Exemption” on your local authority website.

You will need to claim the exemption – usually when you notify the Council of the property sale to a third party but don’t be surprised if they invoice you first for the back Council Tax – I think they try it on with many Executors who might unwittingly pay all amounts requested without question!

If you have any further questions or queries please contact Nigel Shaw, Private Clients Partner at nshaw@garbutt-elliott.co.uk