IHTM22022 - Investigating form IHT415: Valuation aspects

You must value the assets of the unadministered estate to which the deceased is entitled as though they were the beneficial owner of the assets directly as provided for by s.91.

The value of other assets already owned by the deceased may also be affected by the application of s.91, for example where the deceased owns a half share or property and the other half is comprised in the unadministered estate to which they are entitled. Because of s.91 you can treat them as directly owning the entirety and value accordingly.

This is particularly important in considering the value of unquoted shares. You must ensure that when you complete form Val70 for reference to SAV you include all of the deceased's and the spouses or civil partners ( IHTM11032) interest, including any entitlement under an unadministered estate.

You must bear in mind the related property provisions. Remember that you may also have to take account of the property comprised in an unadministered estate in which the spouse or civil partner has an interest.

Form IHT415 of the IHT400 may make it easier for you to decide whether the value offered can be accepted or you need to raise enquiries into this aspect.

In some cases the taxpayer may not be in a position to provide you with all the information you have requested before the grant is taken out. But as a rule, there is no need to wait until the previous estate is finalised before you agree a value for the interest. You are concerned with the value at the time of the deceased's death and in many cases, except where the deceased is to receive a pecuniary legacy, this will be a matter for negotiation or a question of accepting the estimated value returned.

Example

A dies 24 December 1998. B who is entitled to a ¼ share of the residue, and also to the deceased’s ½ share of Whitehouse, dies in January 2001 when A’s estate remains not fully administered.

A’s gross estate consists of the following:

By Will A leaves pecuniary legacies of £30,000 to others, and devises his ½ share of Whitehouse to B, who is the owner of the other ½ share. He leaves a 1/4 share of the residue to B.

The residuary estate therefore contains assets worth £415,000 less the ½ share of Whitehouse worth £150,000 and the legacies of £30,000,, viz. £235,000.

The deceased's 1/4 share of the residue of £235,000 is £58,750 and from this should be deducted:

The revised value of the residuary estate is £52,500 (£58,750 - £6,250).

Part of this will be eligible for agricultural relief at 50%, being tenanted by a nearby farmer. Subject to any enquiry made of the District Valuer ( IHTM23002), this can be calculated as:

The deceased’s interest in the unadminstered estate is therefore:

1. ½ share of Whitehouse, valued as an arithmetical ½ of the whole.
   
   
2. Residue of £52,500, of which £8,936 will qualify for agricultural relief.
   
   

This will need to be checked against the figure returned by the parties, and if, for instance, it is known that the property market has been particularly strong between the deaths it may be worth referring the valuation aspects to the DV. Whether or not to do so is a matter of judgement.

The above example dealt with a situation where none of the assets had been appropriated (i.e. transferred) to the beneficiaries. Where an asset, or part of an asset, has been appropriated, you may need to decide what the correct valuation date is. For example, you may encounter this problem where you have to value the residuary interest in another estate, where under the earlier will (or variation of it) a legacy not exceeding the nil rate band passes to chargeable benficiaries.

Example

In a straightforward case A dies and under his will he leaves a legacy not exceeding the nil rate band to his children, with the residue passing to his spouse. If his estate remain fully unadministered on the death of his spouse B, the HMRC Account for the wife's estate should include all the assets of A's estate valued at her date of death, less a deduction for the unpaid nil rate legacy which may itself carry interest.

Interest - the personal representatives of an estate are not bound to distribute the estate of the deceased before the expiration of one year from the death (s.44 AEA 1925). Therefore, unless otherwise provided for in the will, interest will run on unpaid general legacies from the date one year after the death up until the date of payment or the date of the second death, if the legacy remains unpaid at that time.

In the previous example, if an asset or part of an asset had been appropriated in satisfaction of the nil rate legacy prior to B's death, B's interest in A's estate would have to be calculated having regard to the value of the appropriated property at the date of appropriation. The importance of this can be seen in the following example where a share of realty has been appropriated in part satisfaction of a legacy.

Example

W (wife) dies on 20 May 1998 leaving her whole estate to H, her husband. Her estate on death consists of £128,000 in a bank account and real property, Blackacre, valued at £300,000. There are liabilities, including funeral expenses, of £5,000. The whole of the estate qualifies for spouse exemption and no tax is payable

On 20 January 1999, H effectes a deed varying W's will. Under the deed legacy not exceeding the nil rate (£223,000 in this example) is given to the deceased's children. The deed is accepted under s.142. The value of Blackacre at that time is £400,000.

H dies on 20 January 2000. Blackacre has been included in his account as joint property and H's interest is shown as a 200/300 share of Blackacre. The account includes a helpful note explaining that at the date of W's death Blackacre was worth £300,000 and £100,000 of this was used to make up the legacy of £223,000 to the children under the deed of variation dated 20 January 1999 giving the children a 100/300 share of Blackacre.

On further enquiry it becomes clear that the share to give effect to the children's legacy was appropriated on 21 January 1999. Since at that time the value of Blackacre was £400,000 and only £100,000 of this was needed to make up the legacy, the actual share appropriated to the children's legacy in satisfaction of their entitlement was 100/400 (and not 100/300). Therefore, H's share in the property on his death should be 300/400 (and not 200/300).

Information in an account (or an enquiry raised in response to such an account) may reveal that too much (or too little) property had been put into the nil rate band legacy. The effect on, e.g. a later death or transfer will depend on the facts.

If too much property was transferred into the nil rate band legacy, this may, or may not, result in a lifetime transfer of value depending on the circumstances. Also, there may be an issue about whether there is additional property due to the deceased or whether there is a valid claim against the estate as a consequence of the previous mistake. Any case where you think too much or too little may have been transferred into the nil rate trust should be discussed with TG before raising any (further) queries.

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

Appropriation

Section 41 AEA 1925 gived trustees a power to appropriate assets in or towards satisfaction of any legacy or interest in the deceased's property. Under the provisions of that section, in most cases, the appropriation should be made with the consent of the legatee who is to receive the property absolutely, or of the trustee where the appropriation is in satisfaction of a settled interest. Consents however may not be required if the will expressly provides for this.

An appropriation is a decision or an agreement to satisfy an interest in an estate. It does not have to be a formal deed, as long as other evidence is produced to demonstrate that an appropriation (and more importantly its timing from a valuation point of view) has been made (contemporaneous records of oral statements, letters or the actions of all interested parties may all help to clarify the position). Once an asset has been appropriated the trustees hold that asset upon trust for the beneficiary prior to the transfer of the title.

In practical terms, since many modern wills authorise appropriation without the need for the legatees' consent, an appropriation of an asset may well present itself in the form of documents evidencing an assent, conveyance, or transfer of legal title.