The Telegraph (29th May 2012) reports on an estimate by NFU Mutual that £90m of tax refunds could be available. This is based on an inheritance tax relief designed to help people who inherit a house (or any land) while the property market is falling.
Normally people pay inheritance tax (if applicable) on inheriting their mother’s house calculated on its value at the date of her death. The tax paid could be, say, 40% x £300,000 = £120,000. The house is later sold – but in a falling market at, say, £250,000. Not fair? Well, that’s how it stands unless a formal claim is made for the tax to be reduced. In this example, a saving of £20,000. Provided certain criteria are shown to be applicable, the tax can be reduced. It’s a long standing relief that dates back to previous recessions. The £90m figure has been calculated using the value of property in estates and a general 11% drop in property values over the last 4 years. However, there may have been a couple of factors overlooked. One is that the majority of taxable estates are administered by solicitors. Provided the solicitor is also a TEP (qualified with the Society of Trust and Estate Practitioners), their service should include careful tax planning. This should be for both inheritance tax and capital gains tax (the impact on any estate of Capital Gains Tax is sometimes overlooked when a parent’s home/share portfolio is being sold – until some years later when HMRC catches up). On that basis, in most cases, the relief should already have been claimed for the estate by the solicitors. How can you tell if it has been claimed? You can check the reports and estate accounts which your advisor should have sent to you. What if it hasn’t been claimed? Well, if it was overlooked by a solicitor, then you’re covered by the solicitor’s professional insurance. This assumes you didn’t purchase a deliberately minimal cost service, which some firms could offer, in which tax advice on the administration has been specifically excluded. What if you used a “legal firm”? Well, anyone can call themselves a “lawyer” but they won’t have solicitors’ professional indemnity insurance – because they’re not solicitors. To be a solicitor requires extensive years of exams, a period of supervised training, continuing on-going training, special insurance and regulation by the Solicitors Regulation Authority, amongst other things. What if you did a bit of “DIY”, innocently unaware of those tax reliefs you might be losing? Well, it might not be too late to claim. We can help you to check whether you are entitled to relief, and, if so, help you to claim it. That brings me to the other factor I mentioned. Tax relief for a sale within 4 years of a death: aren’t HMRC generous? Well…., no, not all sales which should have qualified for the relief (with careful pre-planning) can still qualify after the event. The criteria for the relief are not quite as simple as they might sound. The solicitor has to consider e.g. what constitutes a sale (no, it isn’t usually when the buyer pays the price and moves in!) and who made the sale, and how it’s affected by the other assets in the estate. So, maybe HMRC doesn’t have to worry that it will have to pay back a whopping £90m in tax – but there will be some cases and if you think yours may be among them, please contact us for an assessment. For further information please contact Catherine Ball on 01604 463337 or on firstname.lastname@example.org