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Page last updated at 14:27 GMT, Saturday, 8 November 2008

Price falls cut inheritance tax

By Paul Lewis
BBC Radio 4's Money Box

A house and legal documents
Property sold for a higher price may be liable for capital gains tax

Inheritance bills can be cut if property left in a will falls in price after the date of death.

With house prices down 14% in a year and share prices falling by 30%, estates valued a year ago can be worth far less when the tax has to be paid.

The Revenue may be sympathetic and make some cut in the tax.

Alternatively, the tax must be cut if the executors sell property within four years or shares within 12 months at a lower price than the valuation.

Worth asking

John Whiting, a partner with accountants PricewaterhouseCoopers, told Money Box on BBC Radio 4 the problem is now widespread.

"There are measures in the system to cater for this where values do drop.

"First, if you are still negotiating the value that applied at your relative's death - what is called the probate value - there is scope for arguing."

They may be sympathetic, but don't expect it to come down totally
John Whiting, PricewaterhouseCoopers

Strictly speaking the tax is calculated on the open market value at the date of death.

But John Whiting says it is worth asking the Revenue to accept a lower value.

"Tell the Revenue this is not now worth the open market value six or 12 months ago.

"They may be sympathetic, but don't expect it to come down totally."

The flip side

However, if a lower valuation is agreed and the property is subsequently sold for a higher price, then capital gains tax may be due on the difference.

John Whiting says the rules are easier to apply if the property is sold before a claim is made.

"If you do agree that the value at date of death is say £100,000 and then the executors sell it for much less, say £80,000, then provided that is within three years - or four years in most circumstances - of the death you can you can go back and substitute that value"

That means the tax is recalculated and the Revenue will refund the tax overpaid.

The rules do not just apply to property.

They apply to shares as well, though they must be sold within 12 months of the death to get the tax reduced.

If the property or shares are sold within the time limits, a claim for the tax refund can be made up to six years after the tax was paid.

BBC Radio 4's Money Box was broadcast on Saturday,
8 November 2008 at 1204 GMT.

Money Box



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