Where land is sold by personal representatives for less than the probate value within four years of the date of death, relief for the loss can be claimed from HMRC by replacing the probate value with the sale value.
Where land is sold by personal representatives to an unconnected person at less than the probate value, there should be no issues with making such a claim. However, the recent case of Estate of Douglas Charles Thomas v HMRC [2020] highlights the care required when land is sold to a connected person.
The Thomas case
Mr. Thomas died on 9 April 2008 owning 8.08 acres of land with development potential. The land was subsequently sold within the four year period to a company owned by the deceased’s daughter and son-in-law for £500,000.
Legislation provides that for the purposes of claiming loss relief on the sale, the sale price is taken to be the price for which land is sold, or if greater, the best consideration that could reasonably have been obtained for the land at the time of the sale.
HMRC claimed that the best consideration that could have been obtained on the market was £800,000 and this was the amount on which inheritance tax should be due. The personal representatives subsequently applied to the Upper Tribunal to claim loss relief on the sale.
In considering the evidence put forwards by the parties, the Upper Tribunal considered the best consideration that could reasonable have been obtained as the price which the property might reasonably be expected to fetch if sold in the open market at that time.
The Upper Tribunal held that the best value that could have been obtained on the sale was £645,000 and fixed the claim for loss relief at this amount.
Potential penalties for mis-reporting
Personal representatives are under an obligation to report correctly the value of the deceased’s estate to HMRC. If a personal representative fails to include property at its open market value, interest will accrue on any additional inheritance tax due and a penalty may be raised. If a personal representative has knowingly misled HMRC then criminal proceedings for fraud may be brought against them.
This case highlights the importance for personal representatives of seeking professional advice when administering an estate to ensure that they correctly report the value of the estate to HMRC.
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