William Feeny, Kings Court Trust Corporation
No one can have missed the far reaching impact of the credit crunch on the financial markets and specifically on the value of their property and any shares or securities that they own. The most serious impact affecting every working man and woman in this country saving for retirement, is the fall in the current value of their pension pot. Every one must begin to dread turning on the news as new financial horror stories hit the headlines each day.
One area that has had little attention to date is the plight of beneficiaries who are due to receive legacies or shares of residue. The rules for valuing assets for probate are quite straightforward - for the purposes of establishing the size of an estate for probate (and of course for tax purposes) those individuals who are administering the estate (the Personal Representatives or PRs) must use the value of the assets at the date of the death. However the assets cannot be realized until the grant has been received and in the current market the beneficiaries will be very unhappy to receive cash in respect of property values and stocks and shares which have fallen dramatically in the intervening period. The amounts involved are significant – as an example in the last figures available from HMRC, of the Gross Estates passing on death 50% of the value relates to Residential property and 15% to shares and securities. A 15% fall in values is a great deal of tax!
As probate specialists working with the legal profession either as an outsourcing resource or directly with clients, Kings Court Trust Corporation has found that these exceptional circumstances have created opportunities for us to assist our clients to cut tax bills. However the time delay between instructions and obtaining the grant has become even more critical and speed in obtaining the respective grant can save clients time and money
Property has fallen in most regions by more than 15%. With the benefit of hindsight and for properties that are not going to be sold at arms length, one may consider that the value put in for Probate was significantly overstated and that realistically the property concerned would never have achieved that value. HMRC generally can be more relaxed about this situation and there is no harm in writing to say that the Probate Value was too high and proposed an amended value. You may not get everything you ask for but there is no loss in trying! If it is intended that the property is to be sold, the Personal Representatives may after completion of the transaction make a claim within 4 years of the date of death to substitute the realized value. Remember that it is the Personal Representatives who must make the claim for an arm’s length transaction and this is not possible if the property has been assented to the beneficiaries who then decide to sell.
It is also possible to claim for losses incurred on the disposal of stocks and shares although the procedure is more complex. The claim must be made within 1 year of the death and you are only able to claim for the overall net loss in the total portfolio – no cherry picking is allowed here. The relief is not available for unquoted shares.
There is a positive aspect to this - the fall in asset values means that this is a good time to plan to reduce taxable estates by gifting assets to other members of your family or into a trust where tax may have become payable. For inheritance tax purposes the value of the transfers to non-exempt persons is not immediately taxable but is added back into your estate if you die within 7 years and could end up taxed at 40%. For transfers into a trust inmost cases the transfer is a chargeable transfer and amounts over the current Nil rate Band could be chargeable immediately at 20%. However because these transfers are taxable events for Capital Gains tax purposes at the new rate of 18% any increase in value over your tax free allowance could be taxed at the new rate. If you transfer assets when the markets are at their lowest level for many years, you can reduce Capital Gains significantly.
Kings Court Trust Corporation is assisting a number of legal firms with their probate cases at the moment and in the current climate we have added a number of checks into our procedures.
- Is it really necessary to sell assets immediately? Many people do not release that the actual asset can be transferred to the beneficiaries and that in some cases there are tax advantages to be gained through this route.
- Do not assent property to the beneficiaries without asking if the property is to be sold and establishing if here is a possible loss relief claim.
- If assets have to be sold to pay Inheritance Tax there are ways to claim for any losses arising. The rules are more complex for losses arising on shares and securities as only a net loss on all transactions in the period can be claimed and any claim must be made within 1 year.
- Speed is of the essence in obtaining the grant and the delay between the date of a death and the receipt of a grant can cost money.
Remember that HMRC has no obligation to inform tax payers or estates about any reliefs and does not contact Estates about any potential claims – its up to the Personal Representatives and the Advisers to apply for repayment and in the current economic environment these amounts could be quite significant!
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